Entrenched Player’s Dilemma – Japan’s Lost years of Innovation and Competitiveness

What in the hell hap­pened to Japan?   Once known for it’s inno­va­tions like Sony’s Walk­man and Honda’s F1 Cham­pion rac­ers and with trade sur­plus so large that trade mis­sions from US were sent every week to dis­cuss how to fix this imbal­ance now has a bank­rupt gov­ern­ment and the World’s largest pub­lic debt only after Zim­babwe, a num­ber two accord­ing to CIA Factbook.

Japan seems to be in an Entrenched Player’s Dilemma (see foot­note).   After the rub­ble of World War II, it has emerged as a eco­nomic mir­a­cle and giant along with Ger­many.  The Allies wanted Ger­many and Japan con­verted to free and demo­c­ra­tic econ­omy, put in the Mar­shall Plan to rebuilt the infra­struc­ture and indus­tries.  As a result, it had the world’s largest and finest machin­ery, and in a short time caught up with the stan­dards of United States and Britain. Then around 60’s and 70’s, fueled by demands of it’s cheap and pre­ci­sion engi­neer­ing and atten­tion to details, Japan became the pearl of the civ­i­lized East, as West­ern­ers, espe­cially the US made “under­stand­ing Japan” the equiv­a­lent of know­ing Asia while British made inroads to basic trade and bank­ing in China, a much smaller eco­nomic prize at that time.

It con­tin­ued to do well as long as it made cheap and good things, things that could not be man­u­fac­tured in the West­ern fac­tory. But after the Nixon Shock, and clear­ing of the Bret­ton Woods peg of 360 yen to the dol­lar gone,  Japan started mov­ing fac­to­ries and tech­nol­ogy to Tai­wan in the 80’s and later to China in the 90’s to stay com­pet­i­tive, along with key tech­nol­ogy trans­fers to these countries.

Mean­while Japan with it’s wealth and tech­nol­ogy is stuck in a Entrenched Player’s Dilemma in many mar­kets. It refuses to change. It sees CHANGE as evil and to save face in front of mass call to change, it changes the head but the body remains the same.

The most stun­ning evi­dence is in how Japan­ese bureau­cratic sys­tem cre­ated by the bureau­crats after the war assured their pros­per­ous exis­tence with tax money since 1945 with the help of McArthur and future LDP (1958) politicians.

A large per­cent­age of the money Japan made as an exporter in the golden years have been wasted on lav­ish pub­lic build­ings by NPOs and Spe­cial Cor­po­ra­tions（特殊法人）, as well as salaries, art, 1st class world­wide trav­els and mis­tresses. It spurned the Ginza Club Bar indus­try where a sin­gle seat­ing costs more than 500 usd. It spurned the Ryotei pri­vate din­ner estab­lish­ments and inflated prices on prod­ucts because cor­po­ra­tions paid respect to bureau­crats in these establishments.

Only now, thru twit­ter, ustream and  par­tial change in polit­i­cal think­ing, has the Japan­ese gen­eral pub­lic wak­ing up to the fact that these guys have been pay­ing their wives, chil­dren and dummy com­pany mil­lions of yen for years, 10–30 years on some Spe­cial Cor­po­ra­tions and nobody, while estab­lish­ment cre­ated to thwart such behav­ior was actu­ally fuel­ing it as part of the system.

Japan­ese cor­po­ra­tions are taken hostage to this sys­tem where they are expected to pay pun­ish­ing fees to belong reg­u­la­tory com­mis­sions, and to be approved by var­i­ous rules and reg­u­la­tions. Many com­pa­nies that dom­i­nate cer­tain infra­struc­ture sec­tors were and are part of this sys­tems. One such exam­ple is NTT, the for­mer national telecom­mu­ni­ca­tions entity that still dom­i­nates, monop­o­lizes and clutches on basic tele­com infra­struc­ture. It’s out­dated total­i­tar­ian meth­ods have taken a beat­ing from the Par­a­digm Shift tak­ing place in this space. Soft­bank and Apple’s iPhone has cre­ated a major dent in it’s sub­scribers, although this is just a lit­tle dent for them. They OWN most of the FFTH lines and have no rea­son to fear anything.

Now all of these good old days are dis­ap­pear­ing on the sur­face while things have not changed as much as a nation. When I worked at Apple, I remem­ber a story told by my boss, Mr. Harada :

“One day, me and Spindler (then Apple’s CEO) vis­ited the Japan­ese Min­istry of Edu­ca­tion. We walked in and they said no, it was as sim­ple as that. They said Apple was not ready to sup­ply to the Japan­ese edu­ca­tion sys­tem. When asked by Spindler on “when should we come back?” I told him “when 60’s clock hand floor sign on top of the ele­va­tor door becomes digital.”

We knew NEC 9908 run­ning MS-DOS was king, and that any­thing as for­eign and rev­o­lu­tion­ary as Apple’s WYSIWYG GUI OS will never be accepted, even if it was the best. Apple had not paid resects to the Japan­ese bureau­crats the Japan­ese man­u­fac­tur­ers did with their fre­quent din­ners and Ginza club­bing and a seat on the Board of Education.

The lay­ers of suck­ing tax in and sur­viv­ing insti­tuted by the bureau­crats is so exten­sive and wide­spread, Japan as a nation can­not sur­vive with­out it now. No once can change it, unless we begin to sink, and sink Japan has. There are a group of future think­ing tal­ented bureau­crats that have began to insti­tute change after they real­ized that they have been bit­ing their own hands too long and may pass out bloodless.

Humans are greedy. Greed is good in an open eco­nomic democ­racy aka Wall­street.  Every­thing Gekko did in the movie became legal later on.  Laws were changed.  Laws are made by the rich and influ­enced by money and social stature.

Watch­ing news on the Shan­hai World Expo pok­ing fun of the Chi­nese event that every­thing from Haibao the mas­cot to the China Pavil­lion and theme music is a copy. This pro­vides the gen­eral Japan­ese pub­lic with euphemism that Japan is still bet­ter in many detailed ways, naively eas­ing the pub­lic about the harsh real­ity that “atten­tion to detail” is not as impor­tant as raw mate­r­ial. mil­i­tary power, polit­i­cal unity and strong for­eign policy.

On the same chan­nel, it men­tions that China will be the sec­ond largest econ­omy in the world in 2010. Japan­ese pas­sive inac­cu­rate one sided media needs to change. Only NHK con­tin­ues to make world class pro­grams, oth­ers treat star divorces and drug use as top billing of national inter­est.  It’s pro­grams con­tents are filled spon­sored but sub­lim­i­nal con­sump­tion sug­ges­tions.  Air­waves wasted. Seems that Mr. Strong Econ­omy left the build­ing long time ago, and no one noticed.

See my ealier article

Air­port — Cell­phone — Fre­quency — Free­way = The Alien­ation of Japan

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Entrenched Player’s Dilemma from wiki

“The prob­lem with mature com­pa­nies is that the very com­mer­cial suc­cess of their prod­ucts increases their depen­dency on them. Mak­ing rad­i­cal changes in the product’s capa­bil­i­ties, under­ly­ing archi­tec­ture or asso­ci­ated busi­ness mod­els could can­ni­bal­ize sales or lead to costly realign­ments of strat­egy and busi­ness infra­struc­ture. It’s as though pop­u­lar and widely adopted prod­ucts become ossi­fied, hard­ened by the inher­ent incen­tives to build on their own suc­cess. The result is that entrenched indus­try play­ers are gen­er­ally not moti­vated to develop or deploy dis­rup­tive tech­nolo­gies.” ^[1]

^{all pho­tos from ookami_dou’s on flickr}

^{Dis­claimer : these are only a sec­tion of my view­point which I have not expressed fully. I do not intend to crit­i­cize Japan or any other nation, but rather make a cyn­i­cal polit­i­cal state­ment on the state of eco­nom­i­cal limbo that Japan is in due to the “not pass­ing the tourch to the young”, a com­ment which I fully agree and thank from Charles Whip­ple on twitter.}