by Akio Morita
II
In 1962, the Federal Communications Commission was giving us some headaches by requiring all TV sets to have a UHF tuner as well as the standard VHF tuner, even though there were very few UHF stations broadcasting at the time. We were making several models of very small sets, including our famous Tummy TV, a battery-powered micro TV with a four-inch screen. Fitting a mechanical rotary UHF tuner dial into such a small unit in addition to the standard VHF dial was quite a challenge, and I thought the additional money we had to spend for the UHF feature would not pay off because of the limited use of the UHF channels.
(Later, with improved technology, we were able to put all channels on one electronic dial and so the problem disappeared.)
Newton Minow was chairman of the FCC at the time the UHF ruling was made, and as a person interested in Japan he later joined the Shimoda conference. When I was introduced to him, I said something like, “Mr. Minow, I don’t like you. You have caused me a lot of trouble even before we met.” I was only half joking, of course. He invited me to explain myself and I told him the story. To this day, he often reminds me of those first words. Well, we became good friends, and when I went to Washington to introduce the U-Matic video tape recorder there, I invited Minow to our party. He asked if he could bring a friend, and of course I said yes. The man he brought with him was Henry Kissinger, who was then a policy adviser at the White House. Minow told me that this man Kissinger would be a very important person in the future. We chatted for about fifteen minutes, Kissinger and I, and got to know each other a bit. A couple of years later, when he was secretary of state, we met again at a reception in Tokyo and I was flattered that he remembered me. I didn’t expect him to recognize me but he took one look and said, “Hi, Mr. Morita.”
By then the trade problems between Japan and the United States were a central topic of conversation. In fact, many nasty things were being said about Japan in the United States because of the bilateral trade imbalance between Japan and the U.S. Some people were accusing Japan of sending a torrent of merchandise to the U.S., which was forcing Americans out of jobs. Some manufacturers complained that they couldn’t meet the competition and that the Japanese market was closed to their goods. Many of the accusations were really unfair, and some were, unfortunately, true, but I was worried about the total effect of the trade dispute on our broader relationship. I had already established Sony Trading Corporation, and we were actively bringing foreign products into Japan. Our overseas managers were instructed to look for items that would likely sell on the Japanese market. And I was also advising the government and industry associations at every opportunity on the importance of increasing imports and opening Japanese markets to foreign products.
At the reception where I encountered Henry Kissinger in Tokyo, we moved to the edge of the reception room and had a long chat. At one point I told him something that I believe very sincerely: “You know, Mr. Kissinger, we Japanese feel very close to the United States. We have felt that way for a long time, and that is why the war was such a terrible tragedy that should never have happened. My concern today is that in the United States you sometimes mistakenly identify your friends as your enemies. Japan has been, basically, a solid friend of the U.S. for over one hundred years, with the tragic exception of the war. We have joined in a strong defense treaty. We are firmly among the free countries of the world, and the presence of such a politically stable and economically sound country itself contributes to the security of the Pacific and Asia, and this is vital to the United States. We have always wanted to be part of the free world, to keep Communism away from Asia.
“When I was a young student I was taught that Communism and the Soviet Union were the chief dangers to Japan. The United States was never, never considered a potential enemy in those days. My hope, Mr. Kissinger, is that the Japanese and Americans will work to see that we do not make the same mistakes that made us enemies in the past.” Historically, I was referring to the American law that stopped Japanese immigration into the United States, the high tariffs the U.S. put up against Japanese goods, and the cutting off of Japan’s oil lifeline in order to force Japan to pull out of China. If both sides had not made mistakes, perhaps Communism would not be so prevalent in Asia today.
A few weeks later I got a letter saying that Kissinger was very impressed with our talk, and since then I have seen him many times on his trips to Japan, which he makes frequently, and I have been able to introduce him unofficially to some Japanese who carry weight in government and business. Kissinger is very much interested in Japan’s future, and last year we had a little buffet dinner at our house to which we invited the second generation of some of the top Japanese business leaders so he could get an idea of what the coming leaders of Japan are thinking about.
I have tried to get the message across in my private way as a concerned citizen of Japan and a friend of the United States that this relationship is too precious to allow it to be damaged from either side. I have gotten to know others in the U.S. administration such as Cyrus Vance, when he was secretary of state, and Harold Brown, who was secretary of defense, and I knew George Shultz as a fellow member of the Morgan International Council before he was secretary of state in the Reagan administration, to name a few, and my message is the same to them as to congressmen, senators, and the many American businessmen I know: the stakes are very high for our two nations and our goal should be harmony.
We also have to realize that one of the basic problems in our relations is that politicians on both sides of the ocean have to run for office and cannot ignore their constituencies. This is one of the strengths of democracy. Sometimes it is a weakness, too, but one we have to put up with and try to understand.
Constituents in a certain industry will complain that they would be hurt by imports and ask for protection, and once it is given it is hard to give it up. We know, because approximately 44 percent of the goods we export to the United States are under some form of restraint, either “voluntarily” or through quotas or tariffs. Most Americans do not realize this, I have found.
As I said earlier, Japan is coming to grips with the trade problems caused by her own protectionism and is liberalizing all sectors of the economy, except some parts of the agricultural sector, which is one area where almost all countries have trade barriers, including the United States. It has taken Japan a long time to see that this liberalization of the markets was not only necessary but also good for Japan. Our sense of conservatism and caution and the nagging sense of vulnerability kept us from rushing ahead and doing many of the things that were demanded, especially in the area of capital liberalization.
But the pace has been gradually accelerated, and now American and European security houses have traders on the floor of the Tokyo Stock Exchange, and foreign banks are in the lucrative trust banking business and are more and more in the mainstream of Japanese financial activity. The Japanese yen is being used increasingly as an international currency, and even if some aspects of liberalization worry our most conservative ministries and bankers, progressive things are happening. Of course, we Japanese do not feel comfortable with the kind of wide open, frontier spirit deregulation that the United States went through in the early eighties, when banks and savings and loan associations went into freewheeling promotion and many collapsed and the government had to bail them out with public money. We are also worried about America’s overextension of credit and the huge deficits the U.S. has built up.
A very wise Japanese once said that if a monkey falls from a tree, he may be bruised or embarrassed, but he can pick himself up, dust himself off, and he is still a monkey. But when a grand and powerful politician loses an election, he is just an ordinary mortal like everybody else.
Any democratic political system automatically becomes domestically oriented because any politician has to be loyal to his constituents or lose his job. It is disastrous to fall from the political tree, so to speak. It is no surprise, then, that both American and Japanese politicians are basically wo
rried about their own citizens—I won’t say their own hides. Our economic and industrial system matured more rapidly after the war than we expected, and I suppose it was a normal impulse on the Japanese part to protect its growing industries as long as possible, but Japan has been moving out of its protectionist mode.
Japan has been opening up at an increasing pace in the mid-eighties just when new protectionist talk is echoing through Europe and the United States, and Japan’s old policies are sometimes blamed for it. In the decade of the sixties, the American economy increased more than 2.5 times, but the Japanese gross national product more than quadrupled. The pace leveled off in the seventies and the eighties, and now that Japan has arrived, our economy is healthy and growing much more slowly but still satisfactorily, despite some severe problems. Our productivity is very strong still and it is increasing faster than that of most other countries. Although we are moving slowly into more of a service economy, our exports are still about the same as in the past, about 13 to 15 percent of our GNP.
As I have said, we have not found it easy to make the moves necessary to bring us to where we are today. Under our parliamentary system, it would appear that the prime minister of Japan has a great deal of power, because he is the president of the ruling party, the Liberal Democratic Party (LDP), which has been in control and has given us political stability since 1955. The prime minister makes statements in international councils, like any good leader, and he can have personal relationships with world leaders, like Prime Minister Yasuhiro Nakasone developed with President Ronald Reagan and many others, but making good on the promises is more difficult than it would seem.
After Nakasone made his promises to President Reagan to accelerate the opening of Japan’s markets to foreign goods, he surprised many Japanese and American skeptics with remarkable success in moving the bureaucracy and the rest of the government establishment to come up with a program of market-opening measures, including tariff reductions, an end to nontariff barriers, and the opening of government enterprises to foreign vendors. This seemed all the more remarkable because it is often the bureaucracy, not the political “leadership,” that really makes Japan tick. Most of the legislation that is introduced into Japan’s parliament comes from the bureaucracy, not from the political leaders of the LDP. Often the political leaders are too busy fighting each other for power to be involved in some of the more complex problems of the day, with which the capable bureaucracy deals.
We are fortunate in having such a good professional bureaucracy, representing the cream of our universities. But the problem with it, in my view, is that while these professionals are superb technocrats, they generally know nothing else as well as they know the affairs within their own ministries, and since the system promotes from within, there is never any new blood at the upper levels to bring in fresh thinking.
The tax people, for example, are very good at making the tax system work and devising rules and regulations, but they know nothing about business or about how ordinary people earn their living, and without much control from above, except from other bureaucrats at rival ministries, we end up with an unrealistic system that overtaxes some and undertaxes others. But achieving tax reform in Japan is as difficult or more difficult than in any other democratic country because money questions are so vital to everybody.
When I returned to Japan to handle the affairs of my late father’s estate in 1964 I learned a lot about this. The tax appraisers came and evaluated everything, including antiques and artworks. During the appraisal I learned that if you have a nice Japanese garden with a fine tree or particularly well-shaped and artistically placed rocks, they will assess them at a high value like works of art. Imagine paying inheritance tax on a rock in the ground! No wonder we Japanese say family wealth all goes to the tax collector in three generations.
Realizing their weaknesses, like company presidents without any control over various divisions, most prime ministers of Japan have had difficulty trying to make any dramatic changes. Foreigners do not realize what an intricate thing it can be to accomplish seemingly simple things in Japan’s bureaucracy. The ministers appointed by the prime minister, usually for political reasons to satisfy one of the factions within the party, come and go, but the bureaucrats they must work with are dedicated to maintaining the system, the status quo. Consequently, very often orders from above are considered and analyzed and debated to death or until another minister is appointed.
The opening of Japan’s markets came at a time when we in the business community were pressing very hard for it with the government and the bureaucracy, because we had contact with the realities of world public opinion and with the opinions of the international businessmen and consumers we deal with every day. Most bureaucrats have little contact with our reality. Japan had taken many small but important steps toward open markets, but because it was taking so long, many Americans had the idea that there had been less progress than there had been.
The most activist prime minister in the postwar period, Nakasone, said in 1985 that Japan’s bureaucracy was too sheltered, and its elite tradition, learned from the British and French, was too well learned. Nakasone said that after he took over his high office he ordered many vice ministers—the key bureaucrats—to travel abroad, some of them for the first time. He called many of them into his office to tell them directly what he expected of them, a rather bold move for a Japanese prime minister who is usually expected to represent, rather than really lead, the government. And he encouraged many ministries to promote internationally minded people to more influential jobs. “I have bashed many of these vice ministers,” he admitted with a smile, during a speech in which he also said how intelligent a species the Japanese bureaucrats are.
In 1986 he took a giant step forward and made a personal pledge to President Reagan that he would do his best to implement an ambitious program devised by a blue-ribbon committee calling for drastic changes in the Japanese economy and the nation’s life-style. This commission, headed by former Bank of Japan governor Haruo Maekawa, recommended that the nation shift emphasis away from its export orientation and develop an economy geared more to internal demand, which would, among other things, make Japan, already a creditor nation, a much greater importer of the world’s goods. The recommendations would take a long time to implement fully, if ever formally adopted, but more and more the thinking in Japan’s internationalist business community is along these lines.
It is difficult for the bureaucracy to give up anything; the system resists change. For example, when the national telephone system was privatized in 1985 we in the Electronics Industry Association of Japan, which I headed, had to deal with an example of this reluctance. As a government corporation, the old telephone company, known as NTT, was under the jurisdiction of the Ministry of Posts and Telecommunications (MPT), which was actually a sort of parent to NTT. But as a private company, NTT is under MPT control only as a regulating body. Under the new deregulated phone system, as new technologies come into play and new local area networks and other communications systems are set up, MPT will be directly involved with technology standards, as the American FCC is, and with approving new equipment. Therefore, MPT will have to be aware of new technologies that are being developed.
But the Ministry of International Trade and Industry (MITI) has industry technology as its province. And so it is obvious that the problem of crossed boundaries of responsibility and bureaucratic territoriality poses a huge potential problem. If it is difficult for foreigners to understand this system, it is no less difficult for many Japanese. In some long and drawn out negotiations with the Americans over trade, it has happened that a ministry would hold off making an agreement until the very last minute so that there would not be enough time for another ministry to step in and try to change what had already been decided. During the long period of seeming inaction, the foreign negotiators have often accused the Japanese of stalling. To have understood the tactic might have calmed everybody down, but it might also have tipped one
ministry’s hand to a rival one.
I don’t suppose this sort of thing will be a complete surprise to students of bureaucracy around the world. My point is that politics in a democracy, whether in Japan or in the United States, is still basically the same.
In the past when we discussed U.S.-Japan trade relations, we often talked about the perception gap between Japan and other nations. Today, with the increased exposure of businessmen to other cultures, the old perception gap has narrowed. But the trade problems exist because they have become politicized, and now it isn’t necessarily differences in perception but differences in government systems and the way they operate that cause troubles. I call it an inter-bureaucratic problem.
In Japan the bureaucracy is institutionalized. It is a powerful organ that is consistent, so consistent that policy once established is implemented continuously no matter who the changing ministry officials are. In the United States when a new administration takes office, thousands of people in government change jobs. This doesn’t happen in Japan. And so while international businessmen are beginning to understand each other, governments are still behind the times, at odds with each other, failing to resolve even what may be considered a trivial problem by the businessmen directly involved in it. In the modern language, of the computer generation, we lack an interface to help us get business and governments moving on the same problems with the same level of understanding.
In Japan, we sometimes think that we manage some aspects of the government-industry relationship better than the Americans. When we have a declining industry, we try to protect it while it is being phased out; then when it is phased out, and when the workers are retrained or hired elsewhere, there is no need to protect the dead industry or its workers. Sometimes it takes a long time to do this. There are still plenty of problems in Japan, such as featherbedding in the national railway system, which has about twenty-five thousand “surplus” employees. Several thousand are being retrained right now for new jobs in other industries, in a plan to rationalize the giant system. There are scores of government boards and commissions set up to regulate and judge and control agencies and activities that don’t exist anymore. But we no longer protect industries that others can do better, more economically, or more efficiently, with the exception of those agricultural areas that most countries still protect.