THE IMPROVISATION OF JAPAN TO SUCCESS

To many business people and public officials in the West, the postwar success of the Japanese
economy is both an impressive and a puzzling achievement. The success is obvious and measurable;
the reasons for it, far less so. Seeking explanations, Western observers often fasten with wide-eyed
enthusiasm on the mysterious workings of “Japan, Inc.,” that fabled edifice of business-government
cooperation. To it they ascribe a continuous application of single-minded energy; from it they expect
a continual flow of industrial miracles. In this article, Peter Drucker, long recognized as an authority
on Japanese business, takes pointed issue with this familiar myth. No such thing exists, he argues, at
least not in the form commonly attributed to it. The accomplishments of Japanese industry are the
result not of some all-powerful structure but of Japan’s having defined more ably than any other
industrial nation some of the essential rules for managing complex organizations in the modern
world.

“I am more afraid of the Japanese than I am of the Russians,” a young lawyer said to me recently.
“To be sure, the Russians are out to conquer the world. But their unity is imposed from the top and
is unlikely to survive a challenge. The Japanese too are out to conquer us, but their unity comes from
within. They act as one superconglomerate”—a conglomerate Westerners often call “Japan, Inc.”

To the Japanese, however, Japan, Inc. is a joke, and not a very funny one. They see only cracks and
not, as the foreigner does, a monolith. What they experience in their daily lives are tensions,
pressures, conflicts, and not unity. They see intense, if not cutthroat, competition both among the
major banks and among the major industrial groups. And the Japanese are themselves involved
every day in the bitter factional infighting that characterizes their institutions: the unremitting
guerilla warfare that each ministry wages against all other ministries and the factional bickering that
animates the political parties, the Cabinet, the universities, and individual businesses.

Perhaps most important, where the foreigner sees close cooperation between government and
business, the Japanese often see only government attempts to meddle and dictate. “We pull at the
same rope,” the chief executive officer of one big company remarked, “but we pull in opposite
directions.”

The Japanese government is not always successful in making industries work together in the national
interest. Despite 20 years of continual pressure, the supposedly all-powerful Ministry of
International Trade and Industry (MITI) has simply not been able to get the major computer
manufacturers to pool their efforts—something that the governments of Germany, France, and
Britain have all accomplished.

One foreigner after another extols Japan’s harmonious industrial relations, but the Japanese public
curses the frequent wildcat strikes on the government-owned national railways. Only where the
labor unions are exceedingly weak—that is, in the private sector—are labor relations harmonious. As
Japanese labor leaders point out somewhat acidly, Western companies without unions (IBM, for
example) tend to have the same kind of equable labor relations as do Japanese companies. In the
public sector, where unions are strong (a legacy of the U.S. occupation after World War II), there is
no sign of this fabled harmony.

Still, the Japanese have achieved the necessary consensus to participate effectively in the world
economy. Contrary to popular belief in the miracle of Japan, Inc., the competitive success of
Japanese industry is not the result of some uniformity of thought and action. It is the result of
something far more interesting—habits of political behavior that use the diversity in Japanese
national life to produce effective economic action.

Take Competitiveness Seriously

One of these habits is to consider thoroughly a proposed policy’s impact on the productivity of
Japanese industry, on Japan’s competitive strength in the world market, and on Japan’s balance of
payments and trade. This has become almost second nature for Japanese policymakers in the
ministries, in the Diet, and in business as well as for analysts and critics in the popular newspapers
and university economics departments.

Unlike the Americans, for example, the Japanese are far too conscious of their dependence on
imports for energy, raw materials, and food ever to shrug off the rest of the world or to push it out
of their field of vision altogether. These broad considerations do not always carry the day—but
again, unlike the Americans—every interested party in Japan takes them seriously.

The automobile industry

MITI has, since around 1960, steadily opposed expansion of the Japanese automobile industry
because, in large part, it views the private automobile as a self-indulgence and as the opening wedge
of a consumer society, which it finds abhorrent. In addition, it has maintained, at least it did in the
early years, considerable scepticism about the ability of untried Japanese manufacturers to compete
against the likes of GM, Ford, Fiat, and Volkswagen. It has also been quite fearful that a large
automobile market in Japan would provoke irresistible demands to open Japan to foreign imports,
the one thing it has been determined to prevent.

But MITI has also believed, quite sincerely, that expansion of the automobile industry would have an
adverse, indeed a deleterious, effect on Japan’s balance of trade, on her ability to earn her way in
the world economy, and on her productivity generally. The more successful the Japanese automobile
industry, MITI has argued, the worse the economic impact on Japan. The automobile, it has pointed
out, requires the two raw materials that are in shortest supply in Japan: petroleum and iron ore. It
also requires the diversion of scarce resources, both food-growing land and capital, to highways and
highway construction. Instead of an automobile industry, what MITI has wanted is massive
investment to upgrade the railroads’ freight-handling capacity.

There are plenty of diehards left, and not only at MITI, who still maintain that letting the Japanese
automobile industry expand was a serious mistake. Even with record sales to North America and
Western Europe, the industry’s export earnings, they argue, are only a fraction of what the
automobile costs Japan in foreign exchange for petroleum and iron ore imports. A small part of the
sums spent on highways would have given the Japanese railroads the freight-carrying capacity that
the country still lacks, for the enormous amounts spent on roads have not been enough to build an
adequate highway system. Trucks clog the roads; port cities are overcrowded; and air pollution is
increasing.

MITI lost its fight against the automobile. It was defeated in part by the automobile industry, which
forged ahead despite MITI’s disapproval, and in part by the infatuation of “Nabe-san,” the Japanese
“man in the street,” with the motor car—despite its high costs, despite the lack of places to park,
and despite the traffic jams about which no one complains louder than Nabe-san sitting in the
driver’s seat. But at least—and this is the point—the automobile’s impact on Japan’s productivity,
competitive position, and balance of trade was rigorously considered. Even the automobile company
executives who fought MITI the hardest admit openly that it was the ministry’s duty to make sure
that these considerations were taken seriously, no matter how eager they might have been to
proceed with production or how devoted Nabe-san might have been to his automobile.

National Interest First

Estimating the impact of various policy alternatives on Japan’s competitive position in the world
economy is only one of the habits of behavior expected of Japanese leaders. They are also expected
to start out with the question “What is good for the country?” rather than the question “What is
good for us, our institution, our members, and our constituents?”

The basis of leadership

In no other country are interest groups as well organized as in Japan, with its endless array of
economic federations, industry associations, professional societies, trade groups, special interest
clubs, and guilds. Each of these groups lobbies brazenly, openly using its voting power and money to
advance its own selfish ends in ways that would make a Tammany boss blush. Yet if it wants to be
listened to and to have influence on the policymaking process, every group must start out in its
deliberations by considering the national interest, not its own concerns.

No group is expected to be completely unselfish or to advocate policies that might cost it money,
power, or votes; Japan’s Confucian tradition distrusts self-sacrifice as unnatural. Each group is,
however, expected to fit its self-interest into a framework of national needs, national goals, national
aspirations, and national values. Sometimes this expectation produces blatant hypocrisy, as when
Japanese physicians claim that the only thought behind their successful demand for near-total
exemption from taxes is concern for the nation’s health. Still, the physicians pay at least lip service to
the rule that demands that the question “What is the national interest?” be asked first.

By failing to do even that and, instead, asserting that what is good for labor is ipso facto good for the
country, Japanese unions have largely forfeited political influence and public acceptance, despite
their impressive numbers. Conversely, a substantial proportion of Japan’s business leaders has for
100 years subscribed to the rule that the national interest comes first, a rule first formulated by the
nineteenth-century entrepreneur, banker, and business philosopher Eiichi Shibusawa (1840–1931).
As a result, business management is respectfully listened to whenever it discusses economic and
social policies, even by the two-fifths of the Japanese population who faithfully vote for avowedly
Marxist or stridently antibusiness parties and candidates.

The demand that Japanese leadership groups—especially Japan’s business leaders—take

responsibility for thinking through the policies that the national interest requires forces them to
lead. It forces them to take the initiative and to formulate, propound, and advocate national policies
before they become issues. Indeed, it forces them to define what the proper issues are.