A recent article in The Economist was so stupid that I couldn’t resist writing about it.
These kind of stupid articles are nothing new. As one would expect, the self-critical Japanese have been writing them years ago. I’ve criticized the logic that these articles use in this blog (1, 2 ).
It’s similarly easy to find the flaws in the logic that The Economist used;
- In the article, the author assumes that Japan’s culture of lifetime employment and the associated labor rules are at least partially to blame for Japan’s problems. In fact, this is the only hard reason that is cited. If this was true, then we should see a correlation between a countries willingness to fire workers, and the ability of that country’s corporations to bounce back from hard times. As a prime example of a country that doesn’t think twice about firing workers, we can use the US. Also, as another example of a country where firing workers is difficult, we could use Germany. Although we don’t have nearly enough data to make a statistical argument, I sense that we would have a hard time validating this correlation.
- Another problem with blaming it on Japanese corporate culture is that if you look back in history, back into the booming years (which was not always smooth riding, but instead had its fair share of bumps), the aforementioned culture was even more intense. In fact, Japan’s lifetime employment was once envied by at least some US authors. Unless you can explain how Japan’s lifetime employment actually seemed advantageous during the two oil-shocks, you aren’t really in a position to blame the current problems on it. Below I refer to a random article that I found on the web, but I recall that these discussions were abundant in 1970-80.
> Coming at the peak of Japan’s industrial ascendancy, Abegglen produced his insider’s guide to competing against the Japanese challenge, Kaisha: The Japanese Corporation (Abegglen and Stalk, 1985). He repeated the argument that comparative advantages lay in the Japanese firm’s high levels of social integration around lifetime employment.
It’s easy to present theories why Japan maybe faltering. It’s actually just as easy to give a reason why Japan was booming in the 1970-80s. Being able to present a reason for either does not mean that you have a good theory, or that you have any real intelligence. It just means that you can look at two things that may or may not have any meaningful association, and conjure up some logic to say that one caused the other. It means that you have a bit of imagination. Even more embarrassingly, it shows that you’re not thinking with your head, but you are simply following the crowd.
To give a concrete theory that can be consistently used for a least a few decades (and will not look ridiculous after twenty years), it has to be applicable to a span of at least half a century. For a theory on Japan, it has to explain both the boom years and the current stagnation. It has to be a theory that can cause both the good and the bad, depending on circumstances.
For example, what you really want is a theory that can explain why the US consumer electronics industry, which invented the TV for example, is now very weak. Much, much weaker than the state that Japan finds itself in. Or you could try to explain why the company that invented the cell phone (Motorola) has been sold off to a China firm. Or you could try to explain what happened to PC makers in the US. Or you could try to explain what happened to the U.K. automobile industry. If you can come up with such a theory, then and only then will you be able to give some good advice to Japan. Then and only then will be able to predict what will happen to Samsung and the Chinese in the next 50 years.
It’s a bit like trying to understand why a split-fingered fast ball has a different trajectory from a fast ball. If you were only looking immediately after the pitcher released the ball, you would think that a split-fingered fast ball files straight. On the other hand, if you were only looking near the home plate, you would think that a split flies down. Neither it the truth on its own. To understand a single pitch that can change its trajectory so dramatically, you have to take a hard look at how the ball is spinning and how that interacts with the atmosphere. Instead of simply looking at the trajectory, it’s about time that business analysts started looking at spin and aerodynamics.
That is not what the article on The Economist was. It was just a bit of imagination.