Ichiro Suzuki
“Is there anything we want to buy from the U.S.?”, it was once said in Japan way back in the late 1980s. (This remark obviously excluded raw materials such as agricultural and mineral products that Japan has never produced sufficiently.) It was often believed that Japan was capable of producing everything that America made, and did it better. It was a conceit at its apex as it would be amply revealed toward the end of the 20th century and beyond.
Japan has long prided itself in made-in-Japan goods. Though American and Australian beef was much more attractively priced than domestically produced
beef, at a time when the Japanese yen boasted of great purchasing power, Japanese consumers preferred paying premium prices on produced-in-Japan goods while often looking down on or even showing hostility to foreign made goods. Of course, there has always been an exception to blind faith in domestically produced goods. Japanese consumers have always showered affections on European luxury goods and German cars.
Japan opened the country to foreign trade in 1859 after shutting itself down for over 200 years. Since then, foreign goods were worshipped in the upper class while totally out of reach for average citizens who struggled to make both ends meet. The newly formed Japanese government as a modern state, which ousted samurais as the ruling class, deliberately built domestic industry through reverse engineering of European industrial goods. Building industries was essential to earning precious foreign exchanges that were badly needed for development. The new Meiji government’s Imperial Navy originally sourced all their ships from the U.K. and Germany at their start in the 1870s. By the Russo-Japanese War in 1904-05, the majority of the ships was built in Japan. The Meiji government was driven to this strategy of economic development, looking at the plight of China’s Qing Dynasty that was shamed by European powers in the 19th century. Failures to stand up on its own feet would drive Japan to follow the footsteps of China, Meiji government leaders thought. American tycoon E.H. Harriman offered the government to build railroad networks, which were non-existent back then. The government turned down the offer and chose to do it themselves, though it made them heavily indebted to foreign lenders. They didn’t afford to leave key infrastructure like railways in the hands of foreigners. In this process, the government labeled foreign capital as a big bad wolf that was always looking for an opportunity to eat you up, which was in part true.
The Meiji Government’s strategy worked, overall, but labeling on foreign capital had a lasting effect in the psychology of Japanese people. 150 years later, ‘gasishi’, or foreign capital, is still seen, though not always, as a big bad wolf that is looking for every opportunity to suck blood and devour meat out of people here. Integrated resorts, a euphemism for casino, is coming to Japan at last after a big change in regulation that stood over a century. Integrated resorts have met fierce oppositions amid fears of some people ruining themselves financially and socially through gambling addictions. Those who oppose casinos conveniently overlook pachinko parlors, long, well established gambling sites found in every town, that are so easily accessible and hence are greater threats to the society as far as addictions are concerned. Foreign operators have a strong track record in managing integrated resorts, creating jobs, generating profits, and eventually paying taxes. Their opposition to casinos are made louder as it will be foreign operators that make money out of such places. Some oppose ride-sharing services, which are yet to start in earnest in Japan, because they benefit only foreign operators, Uber to be specific. Their xenophobia, however, is not whole-hearted. Many of them are avid users of iPhones. Even if their smartphone happens to be Sony’s Experia, which is not marketed outside of Japan, the phone is run on Android, through which users make a number of transactions that benefit Google. They buy a variety of goods through Amazon, rather than Japan’s Rakuten, and watch movie through Netflix. Tokyo Disneyland is as crowded as ever (though Walt Disney has no equity stake in the park, simply collecting loyalties, a decision made half a century ago that Disney still regrets.) Though applied on double-standards, xenophobia continues to persist in Japan’s psychology especially when the entrants are relatively new and not so well established.
Despite some high profile resentment to gaishi’s intrusion, Japan’s problem is low levels of foreign direct investment, and not too much of it. There is no shortage of foreign firms that are vying for opportunities in the country but can’t, especially at a time when multi-national corporations are leaving China. Net foreign direct investments into Japan at 1.1% of GDP in 2022 was the lowest among G7 countries. It is low not because of public resentment but because of cumbersome regulations that discourage new entrants. Ride-sharing service is a case in point. Old guard politicians remain adamant on protecting the taxi industry’s privileges though they face chronic driver shortages and ones they find tend to be well in their seventies. It is often extremely difficult to get hold of taxi in small, local cities. Stalled productivity since the 1990s is primarily attributed to too rigid regulations. When Shinzo Abe came back to power near the end of 2012, he advocated deregulation as the cornerstone of his economic policy, Abenomics, along with large fiscal stimulation and aggressive monetary easing. While two of the three were put into practice immediately, the third arrow, deregulation, has never been shot in earnest though some regulatory changes have been made step by step, including integrated resorts. The Japanese economy is still left with a chance to revitalize itself with sweeping regulatory changes and infusion of foreign capital. Would the country choose to grab the chance?
*Mr. Suzuki is a retired investment banker based in Tokyo, Japan.
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