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2016.07.26

Rising Expectations of Japanese Businesses Against the Backdrop of Growing Disparities ―Solutions to Social Problems with Which Mr. Trump's and Mr. Sanders' Supporters Are Dissatisfied―

An article published in JBpress on June 20, 2016

  • Kiyoyuki SEGUCHI
  • Research Director
    Kiyoyuki SEGUCHI
  • [Expertise]
    Chinese Economy and Relations among Japan/China and the United States

Widespread Anti-Establishment Population in the United States


A look at the U.S. economy in recent years shows that it is recovering steadily, as exemplified by the departure from zero interest rates last December.

However, many Americans are not benefiting from this improvement in the economy. It is said that during the past three decades, only 8% of high income earners have become rich, with the wage levels of the remaining 92% showing practically no change.

There are also many who have not been able to escape from the agony of repaying a huge housing loan which arose from the collapse of the bubble economy following the collapse of Lehman Brothers. In addition, with wage levels still lower than pre-Lehman-shock levels, for many, the burden of repaying their loans is even heavier than before.

Dissatisfaction is particularly high among white, low-income workers and youths who continue to have difficulty finding employment. These people support Donald Trump and Bernie Sanders in the current U.S. Presidential campaign.

The reason Mr. Trump and Mr. Sanders are performing better than initially expected in the Presidential campaign is the strong discontent of these people with the establishment, which has failed to solve these economic problems properly despite nearly eight years having passed since the collapse of Lehman Brothers.

The symbols of the establishment in the U.S. are Washington, D.C., which controls politics and diplomacy, and Wall Street, which leads the economy.

Hillary Clinton, America's first female candidate for the Presidency, is considered to excel in the political, administrative, and diplomatic abilities required for a President to perform his or her duties. Nonetheless, recent opinions polls indicate that her approval rate remains sluggish, at around 40%, with her disapproval rate exceeding 55%, much higher than the approval rate.

This is because she is regarded as a politician that represents the establishment.

She knows the White House well because she was the First Lady when President Bill Clinton occupied the Oval Office, and she led U.S. foreign policy as Secretary of State under the Obama administration. As shown by these and other records of performance, she boasts of her abundant experience at the heart of Washington, D.C.

In addition, Wall Street's financial institutions underpin Ms. Clinton's ample political funds. Indeed, she is the classic example of a politician who represents the establishment.

Macroeconomic data show that the U.S. economy has continued to recover steadily, but in fact, a considerable percentage of low-income earners do not really feel the recovery. Their wage levels have remained almost unchanged, but some experts point out that in real terms, their living standards are higher than 30 years ago.

This is because of factors such as increases in low-cost imported goods and sharp falls in the price of IT-related high-value-added services.

In the U.S., however, their economic status has declined in relative terms. Many of the workers who formerly felt that they were part of the middle classes have been made to feel that they now belong to the lower income bracket.

Those who have experienced a decline in their economic status constitute a population that is strongly disaffected with the establishment. Their voting behavior makes the outcome of the U.S. Presidential election totally unpredictable.

Some predict that Ms. Clinton generally holds a slight lead over Mr. Trump, but in reality, nobody will know who is going to win until the results are announced in November.



Differences between the West, China and Japan


Similar opposition to the establishment backed by delayed economic recovery and growing economic disparities is observed in Europe and China as well. In Europe, Thomas Piketty, a French economist, and other experts point to growing economic disparities in France.

In China, the Gini coefficient, an indicator of the degree of inequality in income distribution in a country, reached 0.491 in 2008. Later, it continued to fall, and in 2015, it dropped to 0.462, but it is still much higher than in Japan where it remains at around 0.33.

Under these circumstances, the Chinese have deep-rooted dissatisfaction about disparities between urban and rural areas in social security levels and educational opportunities, the social hierarchy that are becoming entrenched, and the downsizing policy of the heavy and chemical industries which makes large numbers of workers jobless, and other areas.

In Japan, too, growing income disparities have been pointed out since 2000. The average wage level of the parents of students enrolled at the University of Tokyo has risen above that of the parents of those who enter Keio University, and as typified by this and other phenomena, experts express concern that income disparities give rise to schooling disparities and that income and schooling disparities become entrenched.

Still there is no serious social phenomenon like the growing strong anti-establishment movement found in the West and China.

One of the reasons for this is probably that while it is common that CEOs of huge Western enterprises earn billions of yen in annual income, most of the CEOs of Japanese large corporations keep their annual income at around 2 million USD or less even if their corporations perform well and return corporate earnings to society by raising the wage level of workers and paying taxes.

The guiding principle behind this attitude is of emphasizing long-term trust rather than short-term earnings.



Japan's Unique Corporate Culture


In general, Western and Chinese enterprises emphasize the pursuit of short-term earnings and focus on maximizing the profits of shareholders. By contrast, many Japanese enterprises tend to consider the long-term stability of management and the trust of customers and society as important.

In Japan, even if the performance of their corporation worsens, a larger percentage of corporate executives make desperate efforts to maintain employment one way or another than in the West and China. The prevailing view among Japanese corporate executives is to avoid adopting a management method often found in Western enterprises as much as possible: recovering profitability through lean management enabled by employee layoffs.

It is essential for enterprises to secure a profit and maintain business as long as they are a profit-making company, but a wide range of Japanese corporate managers share the view that it is not desirable to strive for better corporate performance at the cost of the stability of employment and the benefits of the regional society.

There are quite a few Japanese enterprises in which management not only develops such values and puts them into practice, but also shares them with employees through daily employee training and stresses the importance of contribution to society. Japanese enterprises practicing these guiding principles sincerely are highly rated in the U.S. and China, too.

This corporate culture is not shared by all Japanese enterprises. Remarkably, though, based on the principle of long-term employment, an increasing number of enterprises do not hire workers as regular employees but try to maintain them as temporary workers in order to reduce labor costs.

Certainly, this way of hiring is effective in reducing labor costs, but such enterprises are not highly respected in Japan.



Current Significance of Japanese Enterprises' Contributions to Society


These guiding principles of Japanese enterprises present a possible solution to the growing discontent of people with disparities and their opposition to the establishment that face Western and Chinese economies and societies.

In other words, the corporate culture that does not emphasize the importance of increasing short-term profits to maximize those of shareholders but considers long-term social trust as important and gives priority to contributions to society and stable employment are highly likely to contribute greatly to the stability of regional society and the country as a whole.

These guiding principles of Japanese enterprises and their behavioral pattern meet the needs of voters who support Mr. Trump and Mr. Sanders in the U.S. Presidential election and the leaders of China's provincial governments who strive to secure employment and tax revenue in local communities.

These guiding principles cannot be forced on all enterprises, but if at least a certain percentage of enterprises adopt a management method similar to that in Japan, driven by the principles described above, they could contribute substantially to the stability of regional society and the country as a whole.

Based on the understanding described above, the author urges the following proposal. Japanese enterprises need to fully recognize the actual condition of problems with which the Western and Chinese economies and societies are faced. And they should appropriately emphasize that the guiding principles that drive them and their practice will be effective in helping solve the social problems of the West and China and that they are what Japanese enterprises consider as their corporate value.

Doing so will contribute to stabilizing the Western and Chinese societies. It will also enhance the reputation of Japanese enterprises and allow them to turn it into their brand appeal and use it to strengthen their profit foundation.

Japanese enterprises should stress that they consider it important to gain the long-term trust of the world by contributing to not only the stability of Japanese society but also those of other countries worldwide and that this is the unique value of Japanese-style corporate management. Communicating this value to the world will help increase the presence of Japan in global society.

As far as the author knows, there are quite a few managers of Japanese enterprises who have the spirit to play such a role.

There should be large incentives for the central and local governments of various countries to attract Japanese enterprises which are effective in stabilizing their society, and one possible way of attracting them actively is to provide government subsidies and offer tax privileges.

Even if government leaders in various countries only publicize the great contributions Japanese enterprises make, that would heighten the reputation of the Japanese enterprises, leading directly to enhancement of their corporate brand appeal.

As the trust in capitalist society is shaken worldwide, the author hopes that Japanese enterprises will contribute to the stability of society in various parts of the world, thus encouraging the world to obtain a deeper understanding of the value of Japanese-style management and increasing the presence of Japan on a global scale.



(This article was translated from the Japanese transcript of Mr. Seguchi's column published by JBpress on June 20, 2016.)

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