Interview: James C. Abegglen

For nearly half a century he's been on the forefront of Western efforts to analyze the institutions of the Japanese economy. More importantly, if it weren't for him, the magazine you're now reading wouldn't be called J@pan Inc.

You look a good deal younger than your 74 years. How is your health?
I'm quite healthy, but not taking on new consulting projects, except those I can farm out. People call in and ask, but my wife says: "Don't do it!" I'm on the boards of Ferragamo, Nikkei Science -- a joint venture with Scientific American -- and Learning Technologies; an advisor to a Warburg Pincus equity fund, Broadview Associates -- the leading M&A firm in the IT field -- and Gemini Consulting. Also I am a trustee of International House of Japan.

How did you first come to Japan?
I was a Marine in the Pacific, wounded on Guam and Iwo Jima, and came to Japan in 1945 as a 20-year-old beat-up sergeant. I was here on an all-expenses-paid trip to work with the Strategic Bombing Survey. We were given the voter list and were supposed to find, or prove dead, every hundredth person on the voter list. It was a morale survey -- how people felt about government, war and the future of Japan. My district was Hiroshima. I spent a couple of months there in late 1945, and then went back to the United States, where I eventually got a Ph.D. in anthropology and clinical psychology from the University of Chicago.

Did you practice as a clinical psychologist?
No. It came a little too close to trying to play God, I felt. I came back to Japan in 1955 as a Ford Foundation area fellow and have been here off and on since then, for a total of 25 or 30 years. The time of that Ford grant was when I did the work on the book The Japanese Factory. In that book I coined, in both languages, the term "lifetime employment" -- shushin koyo in Japanese. The book was very popular in Japanese, not so popular in English. Looking back, I see that the term was a naïe one. I should have said career employment, since it doesn't normally last for a lifetime.

If you count post-retirement jobs, including amakudari [high government officials' "descent from heaven" sinecures] employment, it just about does last a lifetime for some Japanese.

Of course in the US we have amanobori -- you go from Wall Street up to the Treasury, just the opposite from Japan, where you go from the government down into the private sector.

You also were instrumental in popularizing the term "Japan Inc."
I used it first in a speech in the mid-1960s in Washington. American audiences at the time, first, didn't care very much about Japan and, second, knew nothing. I was trying to convey the nature of Japanese corporations as having a common financial and personnel policy yet competing among themselves, like units in Alfred Sloan's General Motors. So I used that term -- which I think I had read in the Asahi Evening News; research later found that someone had used it in the 1930s in Fortune magazine. It got picked up by a guy named Kaplan, who was in the US Commerce Department. He did a book on government-business relations in Japan. We at Boston Consulting Group contributed the book's case studies. The term became popular partly because of the Kaplan book.

It became popular also because it provided a simplistic description and, therefore, the public and reporters liked it. In their hands it veered from my attempt to convey a complex combination of cooperation and competition to a paranoid view of lockstep Japan: "It's all one big plot and they're winning, goddamn it! They're all marching together to a common drum and a common drummer and if we could find the bastard and shoot him we'd solve the problem." Unfortunately, you can't prevent such twisting of meaning. I'm intrigued by how much of the news coverage of Japan is done because of what the editors -- probably correctly -- think the readers want to hear. In the Financial Times and New York Times there have been no positive stories regarding Japan for years. I'm also interested in the underlying attitude in the United States generally toward Japan. There are brief periods of positive emphasis, but the prevailing attitude is usually negative to hostile.

How do you think your 1985 book, Kaisha: The Japanese Corporation, has held up?
Kaisha was done in the context of high growth. At the corporate level, at least, the rules you follow to be successful under conditions of rapid growth are very different from those you follow in a mature economy. In high growth, lots of debt is used; it is cheaper than equity. In a mature economy, you have to bring that debt level down. It's not surprising that it's taking Japanese companies some years to make that transition.

Under high growth there have been 11 Japanese producers of trucks, buses, and cars. When growth halts, marginal producers go to the wall. In the case of autos, foreign companies have stepped in. As a Japanese citizen I'm very glad to see those foreign companies putting money in to reorganizing bankrupt companies -- Mazda, Mitsubishi Motors, Nissan. And they are bankrupt.

I'll probably do another book on the Japanese company: Where was it? Where is it? Where is it going to be?

In Kaisha you and your co-author, George Stalk, wrote about three industries that Japan had targeted as keys to the country's economic future: aerospace, "fifth-generation" computers, and pharmaceut- icals. How effective was that targeting?
They didn't make it in any of them. As for aerospace, I was doing a big project for an American company. It was difficult because the CEO was persuaded that what MITI wanted, it would get. We couldn't get him to see there's no way they can do the economically impossible. We must have spent $200,000 of client money trying to get that guy to understand that.

When and why did you become a Japanese citizen?
More than four years ago. I should have done it earlier. Japan has been very good to me both personally and professionally, so why not? It is where my life is. But I must say that I get some rather odd reactions when I cross immigration desks.

Was it hard to get citizenship?
It's not hard to do. The problem is renouncing US citizenship -- that is extremely hard to do. It cost me $15,000 in accountants' and lawyers' fees to do it carefully. You have to do it carefully because the American government has a rather negative view about these things.

Do you think your adopted country is in good shape?
Fairly. Put it this way: I don't think it's a situation like the Perry ships arriving, or MacArthur getting off the plane. Those bleak analyses serve the American ego very well. People say the Japanese have to reform their society. What's the problem -- average savings of $135,000 per family? The US savings rate is negative. The average US family is indebted to the extent of about a year's income. Private debt in the US -- corporate plus household -- comes to about 160 percent of gross domestic product, the same ratio as Japan's public debt. In Japan the problem is public, not private debt.

I would hope we would take the tax levels up eventually, but we're doing OK in the medium term. Subsidizing banks isn't new. They did a bit more of that here than other places. We're probably through the crisis. No meltdown. We're certainly through what looked like a banking disaster. More bankruptcies? Yeah. It won't be pretty. But it's what happens when you have a mature economy, transiting from very high growth.

Maybe the biggest problem here from my viewpoint is the relative weakness of the universities, not in terms of the quality of the institutions but in terms of graduate education: lack of facilities for graduate study, failure to attract students from abroad and fund them, lack of dormitories in a country that is expensive for foreigners. I taught at university here for a long time. We have very limited facilities and programs at the graduate level. To deal with this the government has to get the dead hand of the Monbusho [Ministry of Education] off the system.

Japan is as a whole the most civil, the healthiest country. Public health and secondary education are probably at the highest levels of any country in the world. That's not so bad. No arms exports, the largest foreign aid program in the world. That's not so bad. I would like to see Japan a little less deferential to the US. Encourage Asia to achieve more coherence in financial and trade policy -- turn more toward Asia, less toward the US. We're being terribly deferential to the United States on the military bases issue. There is a risk of stronger feeling.

The thing that's intriguing about the Japanese case as compared to the Anglo-Americans is that the Japanese are retaining manufacturing capacity -- at a cost, you could argue, but the fact is that one does need hardware. Services are no substitute. Japan is producing about 100 million tons of steel this year -- the same as in the 1970s. They're working at capacity. Everybody said it's a dying industry, but it isn't. I had a steel study done to my specifications, a general view of the five big blast-furnace producers. It's widely thought that three will still be around in four years -- Kawasaki, Shin Nippon, and Sumitomo will make it -- while two, Kobe and NKK, will go down. To survive, steel companies are swapping business lines. You get the benefits of merging without the agonies of putting companies together. That's a very Japanese style. In America, entire companies merge or are acquired; in Japan, the company survives.

You've got some very dynamic companies here in Japan, and the dynamic ones continue to perform very well. Take Canon. They're still out there. They're still at the front edge. The exchange rate went from 270 to 100 and Canon continued to export 80 percent of its product. Toyota is one of the great companies, Canon is another, Fuji Film is another. None of them, by the way, is keiretsu-connected. Meanwhile the old guard in the US are toppling: AT&T, P&G, Kodak.

The implications of the exchange rate for US manufacturing are really rather serious. In the US, you have to import. Unless you posit some sort of global monetary system, the US will continue to run massive deficits. My prediction is, you'll see a very weak dollar in a few years, and a strong yen.

So do you believe in the New Economy?
As a substitute, no, as an important supplement and extension, yes. Around 1900 to 1910, the US had 2,000 automobile producers. One of the things you can predict about the New Economy is that there's going to be a massive spate of bankruptcies of the dot-coms and Internet startups.

What about the perception that Japan is behind in high-tech?
That's not a real issue. In R&D expenditures for 1999 to 2000, the Innovation Index for the US Council on Competitiveness rated Japan first in the world. The US dropped from first to third, and by 2005 is expected to drop to sixth. The problem they've had here is that the PC is such a clumsy instrument for the Japanese language. Go to i-mode, and what might be called wireless information appliances, and Japan moves right to the top again. In April we go into the third-generation telephony system, where the US lags behind. At that point the Japanese keitai can be sold in Europe as well. Now it doesn't work outside Japan, but as the world goes to a standard system, they can begin competing with Nokia and the Americans. This game is only at the beginning point in world competition.

Photographs by Andrew Pothecary