Xenophobia stifles Japan’s economy

Free movement of goods, labor, and capital oxygenate capitalism. In my April 15 post I pointed out Japan’s innovative solution to a potentially implosive problem of labor shortage in its aging society. It’s too early to tell if robotic technology will sustain its homogeneous society, but certainly no technology is revolutionary enough to invigorate its lackluster capital markets including the Nikkei. To do that, Japan need only to embrace foreign investors, but its distrust of foreigners impedes. Their biggest fear: takeovers of homegrown enterprises, and not just the hostile kind.

Typical of the ineffective and obtrusive nature of bureaucracy, Japan’s METI (Ministry of Economy, Trade, and Industry) irrationally justifies the fear of foreign investors. The Wall Street Journal quotes a vice minister of METI in a speech earlier this year, “Are corporations the property of stockholders?” Stockholders are “stupid, greedy, adulterous, irresponsible and threatening…They are the type of people who just sell the stock if they get mad.” Somebody please explain to this misinformed fellow that shareholders do, in fact, own corporations, and consistently successful shareholders who focus on the long-term aren’t stupid, greedy, irresponsible, and threatening, although they might be adulterous.

Closing the investment market to foreigners who want a controlling interest in Japanese firms is backed by a visceral, altruistic response. Protection of jobs, loyalty to benevolent founders, and worry of reduced funding for research and development is touted. What’s missing is the foreign influence to increase productivity and competitiveness through restructuring and more capital. Without foreign investment, Japan’s companies may stagnate for years. Twenty five years from now, per capital G.D.P. in the dynamic South Korea may exceed Japan’s, and this may be the catalyst for change for the proud nation of Japan.

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