On October 5, in response to the topic "Is Japan in final meltdown even without y2k?," there was a poignant response that was attibuted anonymously to someone who had worked in Japan for 6 years. It was called "Japan: Saving Face by Losing Time." The author discussed the concept of "saving face" and its implications for lack of y2k readiness in Japan. It was also posted on Gary North, and made a big impression on me.

The author was supposed to have written further articles. Anyone seen anything like this?

-- Steve Francis (sfrancis@sympatico.ca), December 16, 1998

Answers

I speak, read, and write fluent Japanese. I've studied the nation and culture for decades. I can tell you: Japan as a world economic power is toast. And we with them.

But: due to their greater social discipline, willingness to accept suspension of individual interests, near-term memory of wartime hardships, the people will survive.

Below is the post to which you refer:

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In May,1996, I was doing a walk-through of an automated production line of one of the 3 largest companies in the world. My Japanese associates were well-versed in every intricate efficiency tuned into "their" personal part of the process. I was asking questions about inter-departmental connectitvity and the silence made me stop in my tracks. Process efficiency was microscopic, not macroscopic. If everyone focused on their tiny section, the complete department would function beautifully, but dependent on a single manager to pull it all together...based on his experience and knowledge only. I asked about the "millennium bug," since y2k had not really been coined yet and it is referred to as the "ni-sen mondai" in Japanese. As I probed further, I realized that they were clueless. The next day, I started asking( in a gentle, Japanese style) people closer to the top about timetables and understanding. There was a plan in place to begin work the 3Q of 1998. That night, I stayed awake all night to research other company timetables and planning. Not much was really available to research and I forgot about it for a year and a half. The "Wired" magazine article early this year kept me awake again for 2 nights as I hit the net. I was always reluctant to spend too much time on the net because it costs about $6.00 per hour for local phone calls here in Japan. Anyway, in May of this year I realized that Japan is doomed because of the cultural propensity to hide the bad news and murder the messenger. Japanese toast. Answered by PNG (png@gol.com ) on December 02, 1998

-RC

-- Runway Cat (runway_cat@hotmail.com), December 16, 1998.

RC

Thanks for the post.

Actually, here's the text I was referring to:

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Japan: Saving Face by Losing Time

I have lived and worked in Japan for 6 years (for one of the world's largest companies) as an engineer and global business consultant. As a 45 year old executive with a career built on rational problem solving, I am faced with an irrational situation that is almost too horrible to talk about. To understand the Japanese mindset and interpret the true nuance of the language and culture is somethings Americans are not good at.

1. 100% of all government surveys and corporate statements are for saving face and "image" only. This does not mean that they are lies in the Japanese image of lying. In the western image, they are false statements. In the Japanese image, they are hopes for the future. To discuss bad news is culturally equivalent to suicide. You can read the "whys" of this in the near future from other articles I'll be writing about the Japanese approach to y2k-only the Japanese would make a cartoon of a smiley face on a computer screen and call it y2k awareness. Suffice it to say that effort is being made by major utilities, telecommunications, international transportation and international banking to maintain the external image of Japan. The problem is that Japanese industrial and manufacturing strenght is based on automated production to minimize direct material costs. The major manufacturering executives are still in denial and assesments of automated systems have only started recently -- this year.

2. As electronic and industrial parts makers to the world, many Jpanese companies are falsely issuing "no problem" compliance satements to any customer who asks for component compliance information. I have personally witnessed a major industrial automation and control manufacturer give an international customer a "fully compliant" report on a 7 year old building automation system without ever testing the system. The Japanese phrase "mondai nai" or "no problem" is the traditional Japanese business style of answering any request from a customer. If problems happen later, it is considered an opportunity to build a better relationship with the customer by solving the problem together. However, you must never let the customer worry before the problem happens...I know you think I am kidding, but I am deadly serious. So, the resulting problems for global manufacturers using Japanese electronic parts, components, and relying on JIT (Just in Time) delivery are going to be in for a global shock when the Japanese manufacturers are unable to deliver just in time because of the breakdown of their own networks of vendors who have also failed to remediate their automated production lines. The volume of PCBs (Printed Curcuit Boards) delivered to American companies by Japanese vendors is enormous. These cannot be manufactured by hand. They will not be delivered on time and it only takes a few days without parts to stop a complete industry. . . .

Remember, the current Minister of Finance has stated that the first priority to improve the Japanese economy is to begin clearing the massive debt. He said the same thing when he was Prime Minister in 1993. Things move very slowly here when action is required, but many Japanese companies will not make it to the year 2000 because the global market forces at work now will force the Japanese economy to implode before then.

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-- Steve Francis (sfrancis@sympatico.ca), December 16, 1998.

Oh yeah, that's a good one too. If you know Japanese, here's a counterpart bbs to this one, over there:

jy2kbbs

-- runway cat (runway_cat@hotmail.com), December 16, 1998.

The trackwork firm I used to work for had occasional dealings with Japanese trackwork people. Our guys who were doing the negotiating, trying to get down to exactly what the Japanese wanted, when did they want it, pinning down the specs, how much they were willing to pay, etc. etc., were really up a creek without a paddle. The Japanese fellows would NEVER say "No." And their "Yes" often didn't mean 'yes' at all. They were strangers in a strange land, for sure, but so were our people when dealing with them.

-- Tom Carey (tomcarey@mindspring.com), December 16, 1998.

RC,

have you seen anything on how the Japanese plan to deal with their energy and food problems in a post y2k environment? I realize that they have tremendous self discipline, etc, but how many folks can those islands really support without extensive use of commercial fertilizers and insecticides, combined with imported food and fuel?

just wondering, Arlin

-- Arlin H. Adams (ahadams@ix.netcom.com), December 16, 1998.

Japanese banking.

I was watching a Nightline a few days back that scared the wajeebees out of me. And it wasn't even Y2K.

The reporter, Robert Krolwich, was saying that bankruptcy in Japan is verbotin. If you declare bankruptcy, you might as well commit hari kari as well. It dishonors not just you, but your entire family as mortgages run several generations (99 years). When you die with debt, your family pays it.

Also, the judges in Japan are paid something like $150US a year. So judges receive direct payments from participants in the case. (Very different from United States.)

So, Krolwich was saying, we have what he calls "Zombie" banks. They can't go bankrupt, but they're negatively capitalized. They can't make loans, no capital. But they can't write off bad loans, or foreclose and auction off property.

Krolwich was saying the that Savings and Loan crisis in the United States cost each taxpayer about 2 percent of one year's income in costs, after foreclosures and auctions to sell assets had taken place. In Japan, the figure is 25 percent of each citizen's income, and the foreclosures and auctions CAN'T take place to write off the losses and start closing the gap. Thus, you have Zombie banks.

You say, "well how does that affect us here in the good 'ole USA?" Well, many ways, but two are particularly important. One, Japanese banks still hold significant amounts of US debt in the form of Treasuries. If/when the SHTF, banks will have to sell these Treasuries, possibly to cover bank runs. When they do, the dollar will dive vs. the yen and interest rates will likely rise in the US, as the US govt will have to pay a higher interest rate to interest buyers in US treasuries. (Japan certainly won't be buying.)

Secondly, Japan and other Asian nations continue to ask for "loans" to bail out their banks. Problem is, without painful market reforms leading to shameful foreclosure and bankruptcy, loaning money to these banks is like flushing it down the toilet or burning it. So, the massive loans being offered by the IMF (funded by large banks in the US ) are simply "giveaways", which we'll have to write off at some point.

People ask me why I'm so negative on the economy in 1999. That's why. Then we'll get Y2K on top of that.

My wife was unhappy this week, 'cause I wouldn't let her purchase a new minivan, citing that we needed to seriously focus on paying down our debt.

Unless you're going the bankruptcy route, I suggest you save money and pay down debt in '99, 'cause '00 isn't going to make it any better.

I need some cheering up now.

Glen Austin

-- Glen Austin (gdaustin@aol.com), December 17, 1998.

Arlin, I'm researching that very question at this time and plan to write an article on it for publication. I'll drop a pointer. Meanwhile, I urge everybody who needs a break from zeroing their Steyr or re-glazing their cold frames, you might want to read the fascinating:

Japan Sinks : A Novel by Sakyo Komatsu, Michael Gallagher (Translator),

This is interesting not only for its insights into Japan, but also for what to me is an incredibly realistic portrayal of government paralysis in the face of overwhelming crisis. Talk about the o-ring warnings, man, that's nothing compared to the story in this book. Basically scientists detect with absolute certainty but from subtle evidence and careful inference that the islands are "goin down", they approach the government, but, well, in the end they really do go down. It sounds hokey, but it is really well-done and thought-providing. -RC

-- Runway Cat (runway_cat@hotmail.com), December 17, 1998.

Glen, I posted a link to the transcript of that Nightline segment on the forum for PNG to see. Here is a copy of his response:

Thanks for the information, Gayla. I've been pretty busy lately...life getting in the way. After a quick review of the transcript, here are a few comments I'd like to add:

1) The amount of debt quoted is $1 trillion (US). Not true. The debt is $2 trillion (US) and will climb higher as more loans become unrecoverable from foreign and domestic default. The bankruptcy rate in Japan is now the same as during the Great Depression. The interest payments on many yen loans made to Asian countries by Japanese banks are due next month and 1stQ next year (Japanese 4thQ). As of today, I rate the probability of (virtual) default at 95%. These are only the interest payments... The Japanese banks will try to renegotiate terms and extend other (uncollectable) loans to keep from having to report these enormous loans as unrecoverable. This is the purpose of the Japanese goverment extending loans to Asian countries now. They give the Asian countries the cash to give back to the Japanese banks as interest payments. Image is always more important than substance. It doesn't change the fact that the banks are essentially bankrupt.

I don't know the credentials or location of Professor Calomiris, but I suspect he is no longer in Japan and uses only published material and academic contacts to develop his analysis.

Let's put an image to this debt. If you stack $100 bills on the floor, $1 million is just under 4 feet tall. If you don't believe me, try it in your living room tonight. $1 billion is about the height of four (4) Sears Towers (Chicago) stacked one-on-top of each other. $1 trillion is about 4,000 Sears Towers stacked on top of each other. $2 trillion is a stack of $100 bills reaching about 1,500 miles into space. $2 trillion is a stack of $1 bills about 60% of the distance to the moon.

2) I believe it is fundamentally important to remember that banks and goverments have no money. The depositors and taxpayers gave this money (in good faith) to these institutions. Who guarantees bank deposits? The government. Where does the government get the money to guarantee the deposits? From the depositors and taxpayers again. The banks pay a portion of deposits to the government as a premium for the insurance. The same people must pay again.

3) Fiduciary responsibility. Japan has no enforcement of fiduciary responsibility. A person holding up a convenience store by knifepoint will receive a harsh prison sentence for stealing the equivelent of $100. A Japanese prison is not a pleasant experience. Prisoners sit cross-legged in the center of their cell floor all day and are not allowed to speak or lean against a wall. All white-collar sentences are suspended. No business executive goes to prison for stealing or embezzling money. The lesson learned is that it is better to embezzling (steal) millions than steal hundreds. There is no risk or responsibilty. A company chairman will resign in a tearful news conference to take responsibility for a financial scandal, only to be immediately rehired as an "advisor" with the same salary and responsibility. This lack of fiduciary responsibility means that covering up and lying about financial mismanagement has no risk... only reward if you don't get caught.

3) What's being done to fix the problem? Nothing. The debts are the result of the same circumstances that created the S & L crisis in America. The Japanese have been hiding these debts for years. The ultimate in denial. The Japanese version of the RTC will take years to yield any results. The temporary fiscal stimulus packages do not address the debt. The packages will require the local governments to ante up money for public works projects. The local governments are broke. The attempts to bring international accounting standards are only window-dressing. The Japanese "Big Bang" will take on a unique Japanese style that will only frustrate the recent crop of American and European financial companies "thinking" real opportunities exist. The Japanese are masters at delay and obfuscation. They are still debating over the semantics of how to tell China this week that they are sorry about any alleged events that may have happened during war - without actually apologizing...

4) Are the Japanese banks, government and companies financial idiots? Let's consider the debts from the 1980's as spinning plates. Remember the circus performers spinning plates on those slender sticks? How many can they keep spinning at one time? The U.S. and Europe were able to spin only 10 plates for about 2 years before they had to take action (S & L bailout). From the Japanese perspective, they are 32.0216 times more clever and efficient than Americans and Europeans - they have been able to spin 40 plates for over 8 years.

Individually, the Japanese people are far from being idiots; however, the Japanese collective society and dogmatic culture is partly based on the idea: If I don't see it - it doesn't exist. Japanese common sense and western common sense are opposing forces.

5) Next year, Japanese companies will be required to reveal the status of their pension funds (they don't really have pension funds per se, only cash used by the companies). In Japan, the majority of companies pay a lump-sum at retirement. Japanese baby boom years were 1947 to 1953. Most companies have mismanaged the pension money and will be unable to pay the promised lump-sum at retirement. They may not even be able to fund annuity type pensions because of the magnitude of these losses plus the current economic "Desession" (my word...I think Japan has one foot into the D-word already) is draining these funds from company coffers. There are no laws to protect or insure retirement money. This is a dangerous position, but asset management is getting more attention and interest now. One more log being added to the fire.

6) y2k. If Japan is still in denial about WWII, how deep is their y2k denial? "If I don't see it - it doesn't exist." "Image is more important than substance." From where I sit, 25 minutes from Tokyo, the Gartner Group is overly optimistic about Japan. I see big manufacturing problems next year. I think telecommunications and utilities (if fossil fuel delivery interruption is less than1 week) will be on par with the U.S.. Banking and transportation scare me to death.

I forsee opportunities for American and European complient manufacturing companies, especially LSI (Large Scale Integrated circuits), standard printed circuit board fabricators and precision machining companies, to offer contracted OEM manufacturing to Japanese electronics and other companies who will never finish remediation in time. There will be plenty of business available... if they know someone in Japan to contact...(hint).

Financial Prognosis: Japan is going to continue to delay, hide and do things the "Japanese way." No amount of foreign cajoling or pressure will increase of pace of action - never has and never will. Japanese banks are rapidly retreating from overseas operations. I do know that the spinning plates are slowing down...I just don't if the world economy can wait for Japan.

Answered by PNG (png@gol.com) on November 25, 1998.

-- Gayla Dunbar (privacy@please.com), December 17, 1998.