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Expert David Russell: Tsunami Washed Japan’s Spirit Out to Sea

Wednesday, September 28th, 2011

Japanese people nor mally welcome spring as the season when pink and white cherry blossoms perfume the air and float on warm breezes. But on March 3rd, a gigantic earth quake and tsunami devastated the nucle ar complex at Fukushima 206 km north of Tokyo and the surrounding area. Now the country is contemplating not wind borne flower petals, but radiation seep ing into cattle, crops — and people.

Just how much damage was inflicted on Japan’s economy? American David Russell offers his insights. Armed with a masters degree from Columbia Univer sity, he has lived in Japan for 25 years. Russell has worked for a Japanese securi ties company, then the leading business newspaper — the Nikkei — and later started his consulting firm with clients such as Toshiba, Bridgestone and Dentsu. He is an award-winning author of several business books and a landmark article in the Harvard Business Review.

In this exclusive, we asked Russell, “Assess the impact of 3.11 for Japan’s economy.”

He starts that “Japan’s two lost decades since 1990 saw minimal or negative eco nomic growth, rising unemployment, rudderless politics and a steady decline in its global power and prestige.” The disasters are a “body blow to an already weak economy. How it affects the psyche of Japanese consumers remains the big gest risk factor for future stability.”

The government first tabulated the cost of rebuilding at 6 trillion yen ($US 70 billion), then augmented it by 13 trillion yen more (US$165 billion). But one factor omitted, observes Russell, is “how much the the radioactive fallout, real and imag ined, will taint agricultural produce from Japan’s northernmost prefectures.”

For instance, the endangered Tohoku area is poor, but housewives buy its de licious koshihikari, sasanishiki, and aki takomachi varieties of rice. “This fall,” predicts Russell, “they will likely reject these.” What if officials certify quality? The bags will sit on the shelves because Japanese housewives really buy on repu tation. “The government’s credibility was among the largest victims of the disaster. It won’t recover as quickly as the crops,” notes Russell. Japanese housewives now deem everything that grows north of To kyo as suspect.” All Japanese learn that radiation killed thousands for years after Hiroshima. Russell predicts that Tokyo “must purchase the entire fall rice crop. It extends decades of massive farm sub sidies,” but still means a huge extra ex penditure.

The beef industry is also at risk. Af ter 3.11, about 1,500 cows became toxic from ingesting radioactive hay, with the meat shipped nation wide and much of it consumed. Radiation was also detected in plums, bamboo shots, milk and other products — reinforcing the anxiety.

What about tea? “Japan’s best comes from Shizuoka Prefecture, but it also con tains radioactivity — people are spurning it. See an ugly picture forming? Many producers will go bankrupt. Or Tokyo must also subsidize the beef, tea, veg etable and fruit growers — same for fish. See an ugly picture forming? So the real fallout is spreading fear. New bond issues and tax increases cannot cover that. Im ports will rise.”

Radiation was also detected in milk, bamboo shoots, mushrooms and plums. What about exporting these goods? Russell explains that foreigners will bris tle: “Why aren’t Japanese eating it?”

What about government reform? Russell insists that “The 3.11 mess is a golden chance to re-think the status quo and revitalize the economy from the bot tom up.” He praises the efforts of the American-born entrepreneur William Saito. As an opinion leader, Saito is rising fast as one of the 80 people included in McKinsey’s recent “Re-imagining Japan” essay collection. He was also named to participate in “Young Global Leader,” an international organization similar to the World Economic Forum.

Russell hails Saito as a role model for the new Japan. “Immediately after the disaster, Saito visited key ministries to snap them out of their paralysis and urge quick, strategic action to facilitate aid.” For instance, he was “instrumental in ar ranging special visas for foreign doctors. Remember that foreign medical staff were refused entry after the 1995 Kobe earthquake because they lacked licenses for Japan. He also ensured that medical supplies donated by global companies passed customs quickly for distribution. Those would normally be banned be cause their labels are not in Japanese and their efficacy untested here.”

Russell observes a hopeful sign that Japanese commentators are praising Saito for achieving considerable bureaucratic reform where decades of deregulation talk has failed. In a private conversation with Russell, Saito offered that, “People say...that the bureaucrats are too set in their ways. That’s not true. [They] make rapid and significant changes when the fate of the nation is in their hands.... A few changes could release some of Japan’s enormous untapped energy.”

But the momentum toward structural change could peter out. “As 3.11 recedes,” says Russell, “optimism for reform also dims. The potential exists. But the cen tral bureaucrats and Japan, Inc.’s leaders seem determined to vindicate the cynics because they don’t sense a crisis. Their in ability to grasp the current situation — not the nuclear problem but the Japan problem — is the real issue.”

If money talks, then the foreign stuff is negative. Russell reveals that, “New York based fund managers tell me that that in vestors are withdrawing from Japanese eq uities in droves because ‘this economy has no future. The Japanese have the brains, the technology and the capital to be first-class, but its all going down the toilet.”

In fact, the small minority of Japanese executives facing the global challenge of 21st century business would concur, finds Russell. “For instance, Tadashi Yanai, CEO of Fast Retailing Corp., the country’s shining star of global sales growth, wrote recently in McKinsey Quarterly that ‘Japan’s biggest problems are conservatism and cowardice.’” Even as a few men who understand the malaise assert this, laments Russell, “the ruling cliques reassure each other there is really no crisis. Patching up, perhaps another new captain on the bridge, and some new taxes to cover reconstruction costs are enough.”

He rues that “those of us who have made Japan our home must look for a lifeboat or go down with the ship. Yes, Japan is sinking into its third decade of losses to industry, but even worse, whole generations of Japanese have been lost. They have faced conservatism and gloom. Their school aspirations are myo pic. Their willingness to develop that digital widget application they sketched out in uni versity is close to zero. Far more important is this crippled social sphere that encourages future business success. For the first time in generations, Japanese expect their quality of life to be lower than their parents’. The vision and guts that made Japan successful is disappearing, as if dragged out to sea with the receding tsunami.

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