I am going to speak on the long-lasting adjustment of the Japanese economy. The economy has now experienced a long adjustment process for three consecutive years. It looks like this has continued even after 1992. It was the worst record of our economic history after World War II.

In today's speech, I am going to mention three parts. The first part is a comparison of the Japanese economy from the viewpoint of history. In this speech I'm going to mention six decades of the Japanese economy. Since in the 1930s the Japanese economy was based upon the agricultural sector and the experiences at that time, we had the same kind of thinking as African countries.

The second part of my speech will dwell on the huge changes in manufacturing industries in Japan. As you know, the appreciation of the yen has taken place in these three or four years. Our industrial basis has had a huge change, so we have to prepare for the new situation.

The third part of my speech will come as some suggestions as to the formation of an economic order in the African continent.

First I'm going to mention a comparison of the Japanese economy from the historical viewpoint. The Japanese economy now faces a huge historical change. There are three reasons: end of the development of capitalism in Japan; end of the cold war in the world context; beginning of the new economic industrial paradigm.

At first we have to examine the cause of developmental capitalism in Japan. Before World War II, in the 1930s, the outline of Japanese economic society was completely different from the current one. Six decades ago almost all Japanese lived in big families and in rural areas. Usually three generations lived within the same house--grandfather, grandmother, father, mother, and four to five children.

But now most of the Japanese live in single families and in urban areas. Within six decades the average life expectancy has changed very radically. Two generations ago, fifty was the average life expectancy in Japan. But now, the female average life expectancy is eighty-two years, and the male average life expectancy is seventy-six years. Two generations ago, a mother had four to five children on the average. But nowadays, a mother has 1.5 children on the average. Because of these reasons, we are entering an aged society. Around the year 2020, a quarter of the Japanese population is estimated to be about sixty-five years old.

The end of developmental capitalism

As we moved along the development path, the agricultural economy faded out gradually. Even in 1960, thirty-six years ago, the employment portion of the agricultural sector was 26.8%. More than a quarter of the work force was engaged in agriculture in 1960, and they produced 9% of the gross domestic product. Now, below 5% of the work force is engaged in agriculture, and they are producing only 1% of GDP. We have to compare the outline of the economic society, because six decades ago Japanese society had a single-value system. Development was the number one priority; other values were second grade. But now we have a multi-value system in our society; the diversification of value systems means diversified goals for society.

It is the end of developmental capitalism. However, it has proved difficult for the current generation to consider the role of developmental capitalism. The success of developmental capitalism has therefore become a very difficult task for us. When we consider the current situation in African countries, Japanese who are around fifty years old are suitable to understand the tasks of African society. The fifth generation was brought up under the single-value system, in which growth and development were the targets. As for the younger generation in Japan, a kind of cosmopolitanism or humanitarianism will become the base of future understanding.

The activities of the Japan Overseas Cooperation Volunteers are the best example of the mutual understanding between Japan's younger generation and the African world.

Volunteers aged from twenty to thirty-nine who have technical skills and expertise are recruited from the public and dispatched to developing countries. Volunteer corps members contribute to nation building and the training of human resources. They live together with local residents and deepen mutual understanding. They are classified into as many as one hundred and sixty different categories, including farm, medical, personnel, civil engineers, and so on.

Up to this point, we have examined the end of developmental capitalism in Japan and its implication as to mutual understanding between Japan and African countries.

Adjusting to the post-cold-war era

The second reason for Japan's big change comes from the end of cold war regimes. This has had a big impact upon the world regimes. For instance Japan had to reorganise a domestic regime after the defeat of World War II. Furthermore, Japan's development capitalism was reorganised to accept U.S. hegemony in international politics and international economy. Tense conflicts between West and East were inevitable. At that time there was very little room for Japan to play a role independently in the world context. For that reason, Japan's political leaders accepted the hierarchical regime dominated by the United States. Spontaneously, it meant that the hierarchical economic regimes continued in Japan's domestic field. It reflected some kind of conflict existing both in the domestic field and in the world situation. In the domestic field, a very severe conflict between the trade unions and managing groups existed. So in that situation, a hierarchical form of organisation was inevitable.

In the international context, a power shift towards the United States existed. Conflict between the United States and the Soviet Union meant no role for Japan. It was by chance that Japan's economy sought economies of scale in the heavy and chemical industries at that time. In managing the economies of scale, the hierarchical management hold was not the most suitable.

It was a coincidence that both the cold-war regime and economies of scale sought the hierarchical organisation. But after the collapse of the cold war, new democratic and market-oriented regimes prevailed all over the world. Hierarchical organisations became unnecessary, and avoidable war-time regimes which occupied even peaceful times because of the cold war were dismantled one by one.

It was a good chance for Japan's establishments to take up the new situation, but they stuck to the traditional thinking. They lost the best chance to reform Japanese society from organisation-oriented to individual-oriented. In the world context, Japan should seek independent values through peaceful, not military, efforts.

Trade conflicts between Japan and the United States have hindered the brand new approach to the world. From now on we have to adjust to the post-cold-war regimes. This kind of chance came after half a century of hierarchical international and domestic regimes. Even when we consider the relationship with African countries, we couldn't see the situation in a hierarchical order.

Hierarchical management under fire

The third reason for Japan's big change was the beginning of the new economic industrial paradigm. In order to understand this, we have to look at the information age. It was in the 1980s that Japan's industrial targets were set for the new age. The industrialists were talking of the fifth-generation computer, which could understand human voices, and high-definition television based on analog technique not the digital format. There were the extension of memory chips development and colour television; but these organisational approaches within the government and electronics businesses were completely unsuccessful. At that time in the United States, open networking had the momentum in Silicon Valley, California, and personal computers and work stations became the core equipment for the networking business society. This kind of networking changed the theme of the industrial society. It was a change from hierarchical organisation to flat-type networking.

Why did the elite of Japan's industries miss the point? Because they built a future industry as an extension of the traditional one. They stuck to the quantitative targeting new method as to information technology was very interesting one for them. But at the first stage, as to huge electronics companies in Japan, their sales amounts of new equipment were expected to be very limited, because quantity-oriented management thinking occupied them. They were accustomed to mass production, mass sales, mass marketing, mass advertising.

On the contrary, in the United States, small and medium-sized companies began their businesses in the networking of personal computers and work stations. U.S. industrial society could seek new quantitative thinking and Japan couldn't. In the United States an investment boom for new information equipment started from 1992, and it will continue to the year 2000. Through this information-related investment, their productivity will improve steadily. In Japan, three or four years after the United States pioneered, information-related investment has started at last. But a lot of Japanese management couldn't manage the flat type of organisation, because the skills of Japanese management came from hierarchical organisation. Thus a new kind of adaptation would be needed for Japan's management. However, as to the information technology and flat-type organisation, Japan is now catching up.

Seeking a new role model

In this part of my speech, I want to mention the brand new phase of Japan's manufacturing industries. As I explained, our society is facing big changes. According to these changes, Japan's manufacturing industries are now receiving new stimulus and changing the positioning and targeting. If we describe the characteristics of change in manufacturing industries, it is a change from seeking dominance to seeking a new role model of manufacturing. Why do Japan's new industries seek a new role model after the completion of industrialisation in Japan? I think there are five reasons for the necessity of the new role model thinking.

(1) Due to the reflections on the U.S. market under the liberal world trade order, Japan's manufacturing companies rushed to the U.S. market. When they sold enough share in the U.S. market, trade conflicts always appeared. From textiles to colour televisions, automobiles, machine tools, memory chips, so Japanese industries sought dominance of the market. Eventually, what did they get through dominance in the U.S. market? It was a huge appreciation of the yen. On April 10th last year, the value of the yen reached 80 yen vis-vis the U.S. dollar. A quarter century ago, it was 360 yen vis-vis the U.S. dollar. A decade ago, it was 240 yen vis-vis the U.S. dollar. Four years ago it was 130 yen vis-vis the U.S. dollar. Three years ago it was 100 yen vis-vis the U.S. dollar, and last year we had a record of 80 yen vis-vis the U.S. dollar. An adjustment of the huge appreciation of the yen took place from a year ago. So now the exchange rate of the yen is 107 yen vis-vis the U.S. dollar. So it's some relief for the exporting sector of the Japanese economy. Under the current exchange rate, Japanese industries have to survive through very severe competition. Hence they have to seek a new role model in the industry because of the huge appreciation of the yen.

(2) The second reason for the huge change in seeking a new role model is the necessity for finding a new role in burgeoning Asia. Eventually, Asia will become the huge base of manufacturing products, including durable consumer goods, such as automobiles, refrigerators, and so on. Japan's industries are now questioning whether they should stick to dominance through price competition. I think it's not a good idea and that is why they are now thinking of a new role model, especially in Asia. So a new kind of thinking is needed in the context of Asia.

(3) The third reason for the big change was the need for competent engineering on alarge scale. It's symbolic in the information age that concurrent engineering has become possible through information technologies and current databases. When blueprints of files are designed, engineers say from the United States, India, or the United Kingdom will be able to join concurrently through satellite technologies and common databases. This kind of method was introduced from around 1994, and because of this, Japan's advantage in designing plants was destroyed in one vital part.

Japan's industries have to change their method as to the design of products. So, a decade ago, designing a product was an advantage for Japanese industries, because Japanese engineers fancied overtime working for the royalties to their companies. But now, overwork doesn't exist due to concurrent engineering, because various engineers from the globe are joining together. Therefore, the economisation of design cost will be accomplished. In the present situation, a new role model has to be introduced in Japanese manufacturing industries.

(4) The limit of close relationship management within groups and long term transactions have been the characteristics of Japanese industries. To secure long term transactions, close shareholding among groups was preferred. When big assembly companies in say automobiles or electronics depend on the parts and raw materials from close related factories, they were called keiretsu transactions--that is, closely interwoven transactions. It was a symptom of Japan's closed market. But as I mentioned earlier, a huge appreciation of the yen took place. After that, Japan's big assembling companies had to find new solutions for their survival. A new role model for them has become priority number one. Partly they are resolving the group management and keiretsu-type long-term transactions. They are resorting to this because of the current exchange rate of the yen. The assemblers have to import parts and materials because of the cost. Thus, they have to resort to close relationships with their affiliates. So they have to seek a new role model in the Japanese industrial context.

(5) The fifth reason for the necessity of a new global thinking is the change from dominance in hardware to creation of a total system, including software. The intellectual property rights had become the legitimacy to modern-type industries. But Japan's industries depended on massive production methods--mass production, mass sales, mass advertising, mass merchandising. These kinds of techniques were adapted in Japan's manufacturing industries. Therefore, concern as to the intellectual property line is not so swift. In the midst of the huge change, vital importance is shifting from hardware to software. Hence, in the next decade Japan's industries will have to pay a lot of attention to the intellectual property line. In order to get fair shares from manufacturing, Japan will have to examine the necessity of the new role model of industries. You may expect some kind of uncertainties. Why do Japan's industries converge on the U.S. systems? The difference between Japan's industrial systems and the United States will be left. This is because core competence of Japan's manufacturing companies exists in the quality control process of production. Japan's industries will stick to quality control. If they continue to stick to quality control, Japan's working class will continue to get a fair share of the national income. This is because the value-added will come from the production process through the best quality management. This means a fair share for the working class from the national income. I'm forecasting the implication of the change in Japan's industries, and I think that Japanese industries will become more eager to trust their technologies to developing countries. In this process the new role model will be absorbed completely. The problem of Japan's industry is the origin of creativeness. More human resources should be allocated to universities, research, and developmental activities.

Asian lessons for Africa

I am coming to the third part of my speech. This will be some kind of suggestions for the formation of a new order in Africa. I have two postures towards the formation of a new order in Africa. One comes from the analogy of the experiences in Asian countries. The second comes from the lessons of democracy in the market economy in modern history.

First I have to mention the analogy of experience in Asian countries. In the 1960s and 1970s, the North and South problem appeared. Hence poverty and richness in life in the world context. The North and South problem became a very severe one in the1970s. But how about nowadays? That kind of a situation in the globe has became unclear. The number one reason observed for that unclearness is the burgeoning Asian countries. What differentiated Asia from the other developing countries? I have to point to four factors:

(1) The importance of making cross-border networks: The Association of Southeast Asian Nations [ASEAN] was formed in 1967 in order to contain the Vietnam War. Two decades after the formation of ASEAN, it did not work as an economic network. But in the second half of the 1980s, a lot of ASEAN countries became very eager to accept low tariffs for manufactured goods. After the accord on the formation of the Asian Free Trade Area [AFTA] was reached, the momentum for growth has had a solid basis.

(2) The accumulation of liberated economic and trade practises: In a lot of Asian countries, emphasis was laid on export promotion industries instead of import substitution industries. They adjusted their economy for the international framework. They could distinguish making the value-added from exploiting the consumers gradually.

(3) The necessity of core parts within the region: In the development of Asia, some kind of transmission of impetus existed. At first, Japan became the frontier in Asia. In the second half of the 1970s Asian NICS [newly industrialising countries: South Korea, Hong Kong, Taiwan, and Singapore] followed Japan. They were called the "new Japans." In the second half of the 1980s, ASEAN went into transmission. After that, world pools went to Indochina, especially Vietnam. Watching this basic movement, China decided to open its economy in 1979 and escalated its effort from 1992. The Republic of South Africa will be a candidate for the role of core part in the African continent. If core parts exist, transmission of growth can be expected.

(4) Bringing about and fostering the coordination function within the economic system: The coordination function is very important for the development of the economy, so that wise government activities are expected, and in this process emphasis has to be laid on primary education. If coordination function exists in a small portion of the society, successful take-off will be available. For that purpose, education at the elementary and junior high school levels is very important. Allocating resources for this purpose should be the number one priority. In the macroeconomic policy formulation we can borrow the coordination function from the International Monetary Fund or the World Bank.

We have to examine democracy and the market economy. Democracy is very important for the development of the economy. In Europe, democracy meant the counting of heads instead of the cutting of heads. It was wisdom for peaceful transition of political powers. If peaceful transition continues, the investment mind--that is, the spirit betting on uncertain futures--will be strengthened. But if the counting-the-heads method were introduced in the formation of power in Africa, unquestionably that would mean political control by big tribes over small tribes. It will mean lessons of democracy in the modern history. African countries will have to liberalise their perpetual political conflicts. The true implication of democratic thinking is to transform the majority's thought into new compromising ones. That should be remembered.

There are a lot of misunderstandings as to the market economy. Under current Russian regimes, the market economy tends to give advantage towards winners and haves, so that losers and have-nots cannot endure life under the market economy. It is the opposite side of the coin. But under the market economy, consumers, especially have-nots, can take gains through supply-side competition. If competition does not exist, malfunctioning of the market economy will prevail in society. So the market economy should be examined from the viewpoint of the existence of true competition.

As I said, the Japanese economy has now experienced a long adjustment process for three consecutive years. It looks like this has continued even after 1992, to this day.

Thank you very much.

(The above article is offered for reference purposes and does not necessarily represent the policy or views of the Japanese Government)

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Naoki Tanaka

Born in 1945. Did graduate work in economics at the University of Tokyo. Has been a senior analyst at the Research Institute on the National Economy and is now active as an independent economist. Author of Gunkaku no fukeizaigaku (The Noneconomics of the Arms Buildup), Shohi shakai no genzai (The Present Situation of Consumer Society in Japan), and other works.

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