My first book, Weeb Economy, came out in March of this year, but only in Japanese. Since then, a bunch of people have been asking me for an English translation.
Half of the book was a series of translated posts from my blog, so those are already in English. The other half was a new part that I wrote in English and had translated into Japanese by my excellent translator, Kataoka Hirohito. So while I’ll eventually republish the whole book in English, what I can do right now is to publish my English-language first draft as a series of posts on this blog.
In this first installment, I discuss:
Why 2008 was a pivotal turning point for the Japanese economy (and not in a good way)
Why economic stagnation actually presents Japan with a golden opportunity
Why Japanese policymakers should stop focusing so much on macroeconomics, and focus more on development economics
Why a multi-strategy approach to development is better than a single strategy
How Japan has already been attacking its productivity stagnation by improving the performance of its big corporations and by encouraging more startups
Japan lost the future in 2008, not in 1990
When I lived in Japan in the mid-2000s, it still felt very much like “the future”. 3g flip-phones with grainy cameras were far more advanced than anything I had encountered in the U.S. Japanese people had LCD or plasma TVs, while most Americans were still using old cathode-ray machines. Their kitchens had automatic rice-cookers and other appliances I had never seen, and their laptops were higher-performance and far more durable than the ones I had used in the U.S. Their toilets were like something from a spaceship, and their showers could dry clothing. Some people even had digital SLR cameras that could shoot movie-quality video — a miraculous technology I had never even dreamed was possible.
And the cities! Giant screens adorned the sides of buildings, like something out of science fiction. There was always a train station within walking distance that would take me anywhere I wanted to go. The trains were clean and fast and they ran on time, and they even had electronic screens that told you when the train would arrive at the next station. Japanese cars and even motorcycles glided along quietly, where in America they roared and grumbled. Even in the U.S., of course, the most revolutionary, futuristic car — the Toyota Prius — was a Japanese model.
In the 21st century’s opening decade, Japan felt like it had embraced that new century while America was still lingering in the 20th. William Gibson, the celebrated creator of the cyberpunk science fiction genre, wrote this in 2001:
The world’s second-richest economy, after nearly a decade of stagflation…still looks like the world’s richest place, but energies have shifted…yet it feels to me as though all that crazy momentum has finally arrived…[T]onight, watching the Japanese do what they do here, amid all this electric kitsch, all this randomly overlapped media, this chaotically stable neon storm of marketing hoopla, I’ve got my answer: Japan is still the future, and if the vertigo is gone, it really only means that they’ve made it out the far end of that tunnel of prematurely accelerated change. Here, in the first city to have this firmly and this comfortably arrived in this new century - the most truly contemporary city on earth - the center is holding…Home at last, in the 21st century.
Now realize that the Japan of my earliest memories — the early and mid-2000s — was a full decade and a half after the famous bursting of Japan’s economic bubble. I am not hearkening back to the go-go days of the 1980s. By the time Koizumi Junichiro was in office, Japan’s “lost decade” had come and passed, full employment had been restored, and the country had returned to slow but steady economic growth. Despite the overhang of the bubble era, Japanese per capita incomes, measured at international price levels, grew by a respectable 20% between 1990 and 2007:
This was slower than the U.S. or West Europe, but that was mainly due to Japan’s more rapid population aging, which was increasing the percentage of retirees. In terms of GDP per worker, Japan kept pace with other rich countries over this time period, and even outgrew the United States:
And this growth was being felt by regular Japanese people. It wasn’t just fancy gadgetry and big screens. Japanese houses were getting steadily bigger, growing from the tiny “rabbit hutches” of the postwar period into something similar to what Europeans enjoyed:
Japanese people were eating better, too, as local chefs and entrepreneurs took advantage of imported food to create the world’s best restaurant scene, and big new grocery stores like Aeon revolutionized home cooking. Gyms, cafes, and all kinds of public spaces were improving in quality and quantity. Culturally, Japan still felt at the cutting edge, with a vibrant street fashion scene, a golden age of anime and manga, a burst of musical creativity, and an explosion of online culture driven by websites like Niconico.
Given all this, it’s reasonable to ask whether Japan’s so-called “lost decades” after the bubble era were really lost at all. Japan’s catch-up growth had ended, and its living standards were still a bit below the very richest countries like Switzerland or Singapore, but it was solidly within the first rank of nations, and it was still upwardly mobile. It was innovative and vital, at the cutting edge of both technology and culture. And it had accomplished all of this without the kind of deep wrenching disruptions that America experienced after its own real estate bust.
But in the years since 2007, it feels like that Japanese future has been lost. Living standards grew only 6.5% between 2007 and 2022.:
And even that meager amount of growth was entirely due to increased labor input — women, old people, and young people going to work — rather than to productivity increases. In fact, Japanese workers produced less per hour in 2019 than in 2007, falling well behind other advanced nations:
Why did Japan stagnate starting in 2008? It’s not clear. Potential culprits include the global financial crisis, the big earthquake and nuclear accident of 2011, the subsequent shutdown of nuclear power, rapid aging, the retirement of the Baby Boom generation, and the ramping up of Chinese competition. Perhaps it was all of these combined. But whatever the reason, 2008 was the turning point.
This doesn’t mean Japan has stagnated in every regard. Its big cities continue to build themselves up, and its restaurants and shops have continued to improve. But when I go back to Japan each year, I can clearly feel the loss of that futuristic vitality that I felt 17 years ago. Japan’s consumer electronics are no longer the cutting edge, having long ago been supplanted by Apple and various other brands. Its auto companies have been caught flat-footed by the switch to battery EVs, and are now — like most Western brands — are in danger of losing the global market to innovative Chinese competitors.
America’s household appliances have caught up and surpassed Japan’s — plenty of American homes now sport Instant Pots, air fryers, sous vide cookers, video doorbells, smart speakers, and so on. Japan still has much better toilets, and there have been some locally specific innovations such as better air purifiers. But for the most part, Japanese homes still feel like they’re stuck in 2007. And that’s not even considering furniture, which tends to be much higher-quality in the U.S.
This does not mean Japan is a bad place to live, or that it’s no longer a rich country. Far from it. In fact, the amenities of life — the safety and friendliness, the visual beauty, the infrastructure, the unparalleled retail experience, and so on — make it extremely pleasant in ways that richer countries often fail to match. And if, like me, you’re a foreigner with an American salary who works remotely and sets his own hours, Japan can feel like a paradise. (In fact, this will be important for my argument in a bit.)
But for average Japanese people, life in Japan is hard to afford. Average real wages have actually decreased since 1996:
The situation is actually not quite that bad, since it involves substantial composition effects — falling labor hours, the retirement of highly paid Baby Boomers, the entry of more part-time workers into the labor force, and so on. In fact, hourly wages have increased by a modest amount. And the rise of women’s employment since 2002 has taken some financial pressure off of many families by adding a second income, just as it did in the U.S. in the 1980s and 1990s.
But the shift to dual-income households can only happen once. Ultimately, stagnant productivity and low overall growth will continue to make life a slog for the average Japanese family. The weak yen, which is caused in part by Japan’s slow growth, will continue to make imports expensive. And as the percentage of the elderly continues to steadily increase, Japan’s working-age citizens will have to toil more and more simply to afford the same standards of living — unless productivity can be raised.
Because being “the future” isn’t just about having fancy gadgets and cool screens on buildings. Technological progress — the development of new products and better production processes — is the ultimate font of a nation’s quality of life. If Japan can reclaim the mantle of “the future” — if it can reach the technological cutting edge across a wider array of products — it can secure an easier, more fulfilling life for its people.
Ultimately that is why I want the Japanese future back.
Stagnation isn’t a criticism; it’s an opportunity
Before I start coming up with ideas and recommendations, I think I should talk a bit about how we ought to think about economic stagnation.
In the years after Japan’s asset bubble burst, lots of authors took the opportunity to publish very harsh criticisms of nearly every facet of Japan’s economy and society. An archetypical work in this genre is Alex Kerr’s Dogs and Demons: The Fall of Modern Japan, published in 2002, which is a laundry list of assorted complaints about Japanese policy and society. Some of those complaints were accurate, while others — such as the idea that Japan killed its tourism industry by developing its cities too much — now look laughable in hindsight.
Right or wrong, though, my sense is that broadsides like Kerr’s, while certainly heartfelt and well-meaning, are ultimately counterproductive. Among those who take the criticisms to heart, they create a feeling of general despair and helplessness. And among those who recognize the flaws in the critiques, they create a siege mentality; many become convinced that people who point out Japan’s economic struggles are “anti-Japan”. Either way, the result is a general pall of pessimism. And if there’s one thing Japan definitely has too much of, it’s pessimism.
Thus, my aim in this particular essay is not to criticize Japan’s corporate culture, government bureaucracy, cabinet policy, or general attitudes. Stagnation is a fact, but we shouldn’t see it as a failing of Japanese society. Instead, we should see it as an opportunity.
Japan is still a developed country, but the years of stagnation since 2007 have given it some of the advantages of a developing country. Being behind the technological frontier means that other countries have done much of the hard work of pioneering new products, new business methods, new production processes, and so on. This gives Japan the opportunity to play a bit of catch-up, which is always easier than advancing the frontier.
From the 1950s through the 1970s, as Japan strove to recover from postwar poverty and to catch up with the U.S., Japanese entrepreneurs in the electronics, automotive, and machine tool industries either licensed technology from more established American companies, used their published research results, or reverse-engineered their products. Today, there is no reason Japanese engineers and entrepreneurs can’t learn from Taiwanese and Dutch semiconductor companies, American AI and software companies, Chinese EV and battery companies, and so on — and then, eventually, surpass them.
Years of wage stagnation and the weak yen have also given Japan another developing-country advantage: low costs. This creates an opportunity for Japan to both attract investment from all over the world, and to increase exports. In fact, both of these are already happening on a limited scale, as Nikkei Asia’s Obayashi Hiroki reported in March 2024:
The depreciating yen is reviving Japan’s appeal as a manufacturing hub for goods such as cosmetics, while the lower costs for exporters have bolstered the competitiveness of Japanese rice abroad…South Korea’s Cosmax, a contract manufacturer for cosmetics companies, plans to start building its first plant in Japan…Japan is drawing interest from global companies looking for a cost-competitive place to manufacture…
[S]ome Japanese companies are maneuvering to take advantage of the shifting landscape…JVCKenwood, which controls the third-largest global share in professional wireless systems, has repatriated all U.S. capacity to Japan…Manufacturing costs have declined by 30% through lower costs for material and labor.
Another way to put this is that because Japan has fallen a bit behind many other rich countries in terms of productivity, it has the opportunity to experience a period of rapid growth as it catches back up to the frontier. Let’s do a quick calculation. Right now, France’s labor productivity is 61% higher than Japan’s, and grew at 1.26% year from 2009 to 2019. If Japan could catch up to France over the next three decades in terms of both the level and the growth rate of productivity, it means living standards would grow at around 2.86% per year — almost as fast as as in the bubble years of the 1980s. Regular Japanese people would feel like they’re getting richer every year, contributing to a feeling of optimism that has been absent from the country for too long.
Japanese people are far from poor by international standards, but they would certainly enjoy being wealthier. In the 1950s and early 1960s, Japanese households reveled in the chance to have washing machines, televisions, and refrigerators; in the following decade, it was cars, air conditioners, and color TVs. In the 2020s and 2030s, the next set of “sacred treasures” could be futuristic gadgets like electric cars, AI assistants, heat pumps, battery-powered appliances, or personal care robots. They could be simple things like bigger houses, cheaper elder care and child care, and more comfortable sofas. Or they could be something that hasn’t even been invented yet.
A wealthier Japan would also have the opportunity to take more time off of work and indulge in artistic and creative pursuits, like they did in the 1990s and early 2000s. The independent fashion, comics, music, film, art, and animation scenes could flower again. And with more of a cushion of wealth, independent auteurs could take more risks with their careers — the next Shiina Ringo, Kojima Hideo, or Watanabe Shinichiro shouldn’t have to spend their formative years working sixty hours a week at a restaurant just to make ends meet.
In my experience, analyses of Japan’s economic problems tend to ask “What went wrong?”. Was it the financial crisis of 2008, or was it the rise of China? Was it the shutdown of nuclear plants, or was it rapid aging? Was it Japan’s old-fashioned corporate culture, or was it government policy mistakes? And so on. But while the question of “What went wrong?” is certainly of interest to academics, in my mind it is not the question that we should be asking with regards to Japan’s economy right now. Instead, we should be asking “What could go right?”. What could we do right now, in order to make Japan richer?
This is the mindset of a young, hungry developing country. I believe that developed countries could benefit from more of this mindset, and few could benefit more than Japan. Economic growth isn’t something to be maintained out of fear of falling behind. It’s something to aspire to, so that tomorrow will be better than today. Japan now has more to aspire to, and that’s not a bad thing.
Forget about macroeconomics. It’s time for development economics.
When I think of what sort of strategies Japan could use to reclaim the future, I think about development rather than macroeconomics.
Macro policies are what a country uses when there’s a shortage of aggregate demand — idle workers and idle factories, waiting to be called into use. In a rich country, aggregate demand shortages are the main threat to growth. The tools to fight them are monetary easing (having the central bank buy bonds and other assets) and fiscal stimulus (government borrowing and spending).
In the 1990s, after Japan’s real estate bubble burst, the government used both of these policy tools to prevent unemployment from rising too high. And in the 2010s, former Japanese Prime Minister Abe Shinzo and Bank of Japan Governor Kuroda Haruhiko used both of these policies to put more of the Japanese population to work.
Macroeconomic policies — mostly monetary policy — largely succeeded in boosting employment under Abe. For most of Japan’s postwar history, between 67 and 70 percent of Japanese adults aged 15-64 were employed; under Abe that increased to 78%:
Housewives and NEETs moved into the workforce, and people took fewer early retirements. In fact, many seniors in Japan started working longer into their golden years.
Abe and Kuroda’s macro policies put the nation to work. This is why Japan was able to eke out a 6.5% rise in GDP per capita between 2007 and 2022, despite zero productivity growth and rapid population aging. But this is the kind of achievement that can only happen once. Essentially everyone in Japan now has a job — there’s no one left to move into the workforce.
That means there’s no more scope for macroeconomic policies to help Japan grow. Obviously, full employment should be maintained, and future recessions will need to be fought. But if Japan is going to boost its people’s living standards into the top rank, it’s going to need microeconomic policy instead.
The standard tools of microeconomic policy are regulatory improvement, tax changes, and innovation policy. These will all be important for Japan. And I also believe that industrial policy — the practice of encouraging specific groups of industries, and even specific industries — will be important as well. Japan used the “developmental state” to great effect in its postwar miracle, and I believe this can help to produce another, smaller miracle today. But the development strategies that work in the 21st century are going to look different than what worked in the 20th.
Multi-strategy development: Try everything at once!
Outsiders have written two canonical, authoritative books about Japan’s postwar economic miracle. These are Chalmers Johnson’s MITI and the Japanese Miracle, and Bob Johnstone’s We Were Burning: Japanese Entrepreneurs and the Forging of the Electronic Age. These should always be read as a pair, because they reach almost exactly the opposite conclusions about why Japan succeeded from the 1950s through the 1980s.
Johnson believes that Japan’s secret sauce was the developmental state — in particular, the old Ministry of International Trade and Industry. He argues that it was Japan’s hyper-competent bureaucrats — selected from the best and the brightest, and motivated by a high-pressure “up-or-out” career path — who engineered Japan’s miracle. The key policies, as he sees it, were A) encouraging cheap finance to increase production for the domestic market, and B) controlling the flow of foreign exchange to encourage heavy industry, and later electronics.
Johnstone, by contrast, believes that MITI simply got in the way of Japan’s true source of growth: private entrepreneurs and inventors. He tells the stories of heroic engineers like Tadashi Sasaki, Iwama Kazuo, Kuwano Yukinori, and Nakamura Shuji, and the bold entrepreneurs who backed their ideas at companies like Sharp, Casio, Soney, and Stanley. Johnstone argues that by focusing on established companies instead of upstarts, MITI ignored or even hindered this historic wave of innovation.
Who is right, Johnson or Johnstone? The likeliest answer, given the many compelling stories that each author uses to make his case, is that they’re both right. Japan’s postwar miracle was not the triumph of a single “silver bullet” theory of development, but a multi-strategy effort. Even as bureaucrats were nudging big old Japanese companies toward the future, private entrepreneurs were doing their own thing. Occasionally these efforts came into conflict over scare resources, but in general they coexisted successfully; rapid productivity growth at home and access to global markets abroad meant that there was plenty of demand for the products of both types of companies.
In fact, this might not have been a happy accident, but an inherent advantage of multi-strategy development. The economists Ricardo Hausmann and César A. Hidalgo have done research showing that a nation’s economic complexity — the variety of different goods and services it produces — is a good predictor of its growth. Japan’s bifurcation into a government-directed big corporate sector and a more freewheeling entrepreneurial sector in the postwar years may have contributed to its economic success, since those two types of companies tend to address different markets and create different kinds of products.
In the end, both types of companies succeeded in the mid- to late 20th century — the Toyotas and the NECs of the world, and also the Sonys and the Sharps. Had either type had failed, Japan’s postwar miracle would have been weaker. Johnson and Johnstone have each grasped once piece of the proverbial elephant.
It’s very likely that the same principle holds true for developed countries. Consider the U.S., whose economy has done better than almost any other rich country in recent decades. Go down the list of the most valuable American companies, and you’ll see relative newcomers like Apple, Microsoft, Nvidia, Amazon, and Google at the top. But scroll just a little farther down, and you’ll see older companies like Eli Lilly (founded 1876), Procter & Gamble (founded 1837), Johnson & Johnson (founded 1886), and General Electric (founded 1892).
Even the most entrepreneurial countries don’t replace most of their older firms; they simply add to the list. Apple and Google added huge value to the American economy, but they didn’t do it by replacing the likes of Eli Lilly or General Electric; instead, they opened up new markets and developed different kinds of products. A few of America’s old companies withered and died, but many succeeded in improving their operations, sustaining their innovation, adopting new technologies, modernizing their management styles, and continuously looking for their own new markets. Even Microsoft, which was a hard-charging startup just a few decades ago, recently had to reinvent itself as a cloud computing company in order to maintain its position.
The lesson here is that a successful development push shouldn’t put all its eggs in the basket of a single overriding theory. Because we don’t know in advance what will work, various approaches and models should be tried in parallel in order to improve productivity. Just as a basketball team needs both three-point shooters and “slashers” who drive to the paint, a country’s economy needs multiple ways to attack the problem of development.
Japan’s pincer attack against stagnation
In fact, there are signs that Japan is already beginning its industrial revival, and we can see at least two different strategies at work. Roughly speaking, these are A) revitalizing existing Japanese companies through changes in corporate governance, business strategy, and labor practices, and B) developing new companies by encouraging startups.
In her 2020 book The Business Reinvention of Japan, Ulrike Schaede argues that the first of these is going well. She explains how some large Japanese companies like FANUC, Mitsubishi Electric, and Fujifilm have streamlined themselves by selling off many non-core competencies, and how they’ve carved out defensible, profitable export niches for themselves by making high-tech components and materials. She cites policies like Japan’s new Corporate Governance Code and Stewardship Code, as well as former Prime Minister Abe Shinzo’s rhetorical focus on increasing corporate profits, as having contributed significantly to this revival. She also cites financial innovations like the JPX-Nikkei 400 stock index, which selectively highlights and promotes companies based on various measures of profitability.
There is some evidence to support Schaede’s view. Japan’s corporate profits have seen a revival since the early 2010s:
As James Montier and other have pointed out, a lot of this has been from corporate deleveraging; operating profits, which give a better indication of a company’s long-term economic strength, have increased by a more modest amount. But the trend is definitely in the right direction!
And investors have recognized corporate Japan’s revival. The Nikkei 225 stock index has been on a tear recently, outpacing other world stock markets by quite a bit, and finally reattaining the heights of the bubble period:
As Schaede and others have shown, much of this increase comes from greater foreign demand for Japanese stocks, meaning that the world is betting on Japan, Inc.
Meanwhile, although Japan no longer has a trade surplus, its exports have been rising:
Meanwhile, signs of changes in Japan’s traditional corporate culture are starting to emerge. One key shift is the move away from lifetime employment toward mid-career hiring. Nikkei Asia reports:
Japanese companies will fill 37.6% of job openings with midcareer hires this fiscal year, a Nikkei study shows, the share representing the largest-ever shift away from Japan’s traditional lifetime employment model…The ratio of midcareer hiring had hovered in the teens until fiscal 2017, then rose rapidly until topping 30% five years later.
So far, surveys suggest that a little over half of Japanese job-switchers are happy with the outcome.
Another big shift is the rise in female managers. Although Japan isn’t close to hitting the 30% target that former Prime Minister Abe set out, the number has steadily risen, and stood at around 15% in 2021.
Meanwhile, hybrid work is becoming more popular. According to one recent survey, over 70% of Japanese workers now work at least one day a week outside the office. This will probably help Japanese companies shift from a focus on work inputs to work outputs, since remote work inherently rewards completion of concrete tasks rather than the number of hours an employee sits at their desk. That will eventually help boost productivity.
Corporate Japan is slow to change, but it is changing.
This is all good, and should be counted as a success for Abenomics and for Japanese management. But so far the revolution in corporate profits, stock prices, and exports hasn’t been enough to revive real wages or productivity in the aggregate. Japan needs other strategies in addition to Schaede’s “aggregate niche” strategy.
In his 2023 book The Contest for Japan’s Economic Future, Richard Katz outlines a radically different strategy for Japan’s economic revival. He doubts that big corporations will ultimately be nimble enough to reinvent themselves en masse, noting that in the U.S., there’s high turnover among the biggest companies. Instead, he places his faith in high-growth startups, sometimes known as “gazelles”. He cites entrepreneurs like Minami Soichiro of the job-matching company Visional and Matsumoto Yasukane of B2B e-commerce platform Raksul, and the “intrapreneurial” corporate culture at Recruit, as examples of how innovative companies can carve out new business niches.
In fact, Japan’s venture-funded startup industry has been experiencing somewhat of a boom in recent years — although like most other countries, it took a hit in 2022.
Kenji Kushida has a good series of posts at the Carnegie Endowment, explaining the changes in Japan’s startup ecosystem and its venture capital industry. He points out that although Japan’s VC industry trails the U.S. by a lot, it’s about equal in absolute size to that of Germany, the UK, South Korea, or France. He also shows that the world of startups is gaining more prestige, talent, and autonomy in Japan — independent VCs are eclipsing in-house corporate investors, founders are increasingly being drawn from the ranks of top universities and companies, and there are the beginnings of a virtuous cycle where successful founders become investors themselves.
But despite some very real improvement, Japan still has a lot of opportunity to increase entrepreneurship. The Global Entrepreneurship Monitor shows Japan lagging many other rich countries in terms of total entrepreneurial activity as of 2022:
Katz suggests a number of concrete policy changes that could encourage more high-growth startups — tax breaks for angel investors and LLCs, government procurement contracts for young companies, administrative guidance to increase bank loans to startups, policies to encourage open innovation, and so on. These are all ideas worthy of consideration, and wouldn’t be very hard to implement.
Katz also calls for government to rescue fewer failed companies with tax-funded bailouts — something I’ve also long advocated, and which research shows is a problem. In fact, the Japanese government has been moving in this direction:
Japan’s government is willing to let more underperforming companies fail, three senior government officials told Reuters, a previously unreported acknowledgment that they said reflects an urgent need to replace sclerotic businesses with those able to deliver growth…The move will help Japan channel workers and investment to its most productive companies in a tight labor market, boosting wages, said the officials, granted anonymity to discuss a sensitive issue.
There are plenty of ways to protect Japanese workers from these necessary changes. Japan is already developing a robust private equity industry and a culture of domestic M&A that helps preserve jobs by incorporating less successful Japanese companies into more successful ones. On top of that, Katz suggests the creation of a Danish-style flexicurity system to help individual workers, which sounds like a great idea.
Schaede and Katz have thus identified two very different approaches to Japan’s economic revival. And unsurprisingly, there is some disagreement between the two as to which model is better. Interestingly, the two sides of the argument are much the same as between Johnson and Johnstone a generation earlier — Schaede places her faith in government policy that nudges big business toward the right markets and products, while Katz places his faith in independent entrepreneurs.
And just as with Johnson and Johnstone, it’s likely that both sides are correct. Yes, big old companies and fast-growing startups compete for resources like bank loans and engineers, and occasionally they even compete in product markets as well. But this competition is ultimately less important than how the two types of companies complement each other.
New Japanese companies will provide crucial inputs to older ones — to use two of Katz’ favorite examples, Visional and Raksul help older Japanese companies with hiring and purchasing, respectively. If Japan manages to build a software industry, Japanese manufacturers and service companies will likely be big beneficiaries. And so on.
Japan’s entrepreneurs will also be able to exploit export niches that older companies miss, because the initial market is too small. This is exactly what Sharp did with digital calculators and LCDs, what Seiko did with quartz wristwatches, and what Yamaha did with digital synthesizers. (These companies were not startups when they pioneered these famous products, but the principle is the same.) Sometimes the new products will disrupt old companies’ business models, but often they’ll just create new markets and add to Japan’s list of competencies.
Finally, new and old companies will be able to share ideas with each other — innovations in management, production techniques, marketing leads, physical technologies, and so on — via the boom in mid-career hiring. Employees take their knowledge with them when they move. Startups can hire people from big companies who are too restless, disaffected, or ambitious to work their way up the corporate ladder. And big companies can hire employees from startups who are looking for a more secure paycheck, bigger research budgets, and a larger support staff. In a way, mid-career hiring and open innovation can make a whole industry, a whole city, or even a whole country into one large keiretsu.
But there’s a third group of companies that can be incredibly useful to this process. And they represent a third strategy for Japan’s economic redevelopment, which the writers I mention above — as brilliant as they are — don’t really discuss. I’m talking about foreign companies and foreign entrepreneurs who use Japan as a base for production.
Already we can see this third strategy start to materialize. The first place to look is Kumamoto.
(In Part II, I’ll explain why greenfield FDI is an important missing piece of Japan’s economic recovery.)