Toru Hashimoto, the mayor of Japan’s third largest city (after Tokyo and Yokohama), rants on for more than 90 minutes in the sharp sentences that are his trademark. Everyone — not only in the room but also throughout the nation — hangs on to each syllable uttered by this youthful former TV personality. Inevitably, most of those syllables are vitriol hurled at the politicians running the country in Tokyo. They have become so beholden to special interests, Hashimoto charges, that they have turned deaf to the needs of the nation. The current electoral process “is against the principle of democracy,” Hashimoto blasts. The Diet, Japan’s legislature, “is moving further and further away from the will of Japanese citizens.” He has proposed slashing in half the number of lawmakers in the Diet’s lower house and eliminating the upper one altogether. “The nation’s system of government is crap,” he says.
Such blunt talk — an anomaly in the rarefied world of Japanese politics — has Hashimoto’s critics screaming that he is a dangerous demagogue. But voters frustrated with their do-nothing national leadership instead hear a can-do, 43-year-old voice in an establishment dominated by stodgy old-timers. A recent poll shows that Hashimoto’s Japan Restoration Party has become the third most popular in the country, in place to challenge the ruling Democratic Party of Japan. That support comes even though Hashimoto announced only in mid-September that his fledgling movement would contest parliamentary seats nationwide. With general elections expected in coming months, Hashimoto could become a powerful new force in national politics. “He’s had a great impact by making people realize there could be a popular groundswell” against mainstream parties, says Jeffrey Kingston, an Asian-studies professor at Temple University’s program in Tokyo.
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Such public discontent comes as no surprise. The recent news out of Japan has been almost all bad. The government has appeared weak and aimless in an escalating dispute with China over the ownership of remote islands, with Prime Minister Yoshihiko Noda waffling between recalcitrance and appeasement. Like his predecessors, Noda has also struggled to implement his policy agenda at home. Though he scored a rare victory by gaining Diet approval for a consumption-tax hike to help close the government’s perennially large deficit, he failed to win the support of his own Cabinet for a plan to eliminate nuclear power in the country by 2040. That measure would be widely popular in the wake of the terrifying meltdown at the Fukushima reactors after northern Japan was hit by a devastating earthquake and tsunami in March 2011. Japan’s recent economic performance is no more encouraging. In August, the country posted a $9.6 billion trade deficit as exports — the economy’s lifeblood — fell by 5.8%, while GDP in the quarter ending in June inched up by an annualized 0.7%.
What Japan needs to do is no secret. The country has to overcome its protectionist predilections to integrate more with a roaring Asia. Meddlesome bureaucrats have to liberalize the domestic economy to spur competition, efficiency and entrepreneurship. The government must build a better social safety net to persuade Japanese to switch from being savers to spenders. Consensus-oriented CEOs have to take more risks and boldly invest in up-and-coming businesses.
Without such reforms, Japan can only wither. Much of the country, particularly Tokyo, appears prosperous, yet Japan’s GDP is roughly the same size as it was 20 years ago. An aging population leaves fewer productive workers to spark a revival. Some 35% of the remaining able-bodied are stuck in unstable short-term jobs. Japanese companies in industries they once dominated, like consumer electronics, are being outmaneuvered by more nimble competitors. The International Monetary Fund expects Japan’s national debt (though mostly financed locally) to swell to 235% of GDP this year, the highest level in the industrialized world. Small wonder that many Japanese worry the future will bring only further decline. “Both Japanese companies and the people of Japan have this wrong perception that we are still rich, but we are not anymore,” says Tadashi Yanai, CEO of Tokyo-based Fast Retailing, which operates the Uniqlo chain of clothing shops. “I’m beginning to fear we are on the verge of collapse.”
There are signs, however, that some Japanese won’t accept the status quo. Last year’s nuclear disaster achieved something unusual in often apathetic Japan: getting people out on the streets. Tens of thousands demonstrated to pressure the government to eliminate nuclear power entirely. Shota Mizukoshi, a 20-year-old college student at a protest in Tokyo in August, hopes more will join them. “A new atmosphere has come, that we are showing strong political opinions, that they are nothing to be ashamed of,” he says. Another protester, cleric Mamoru Yamamoto, feels that the Japanese are finally standing up for their own future. “Some change is really going on,” he says.
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The demonstrators are not alone. Across Japanese society — from corporate boardrooms to start-up incubators to city halls — bold men and women are aiming to shake Japan from its malaise. Admittedly, these change agents often remain on the fringe, but they are also sources of hope emerging from the rubble of a failing nation. Like Hashimoto, they insist Japan is capable of reform. “If the right way of politics and administration is realized,” says Hashimoto, “I think Japan can still take a position as a leader in Asia or in the world.”
Osaka’s Shogun Hashimoto is typical of those Japanese who want change and are doing something about it. Many politicians hail from patrician backgrounds, but Hashimoto is a self-made man of dodgy pedigree. His father was a yakuza — a Japanese gangster — who committed suicide when Hashimoto was in grammar school. Hashimoto passed the tough exams to gain admission to prestigious Waseda University, then launched a law practice in Osaka in 1998. His regular TV appearances to comment on legal affairs made him a household name. In 2008 he won the governorship of Osaka prefecture with the backing of the Liberal Democratic Party (LDP). But two years later he broke from the established parties to form his own (originally the Osaka Restoration Association) and in 2011 was elected mayor of Osaka city.
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Hashimoto’s tough approach to governing Osaka transformed him into a national figure. His outsider status gave him an advantage in confronting powerful interest groups in the city and tackling one of the country’s most intractable problems: excessive state expenditure. Hashimoto has taken on public-sector unions and slashed the salaries of civil servants and other state workers like bus drivers. In August, the Diet passed a bill allowing for the merger of Osaka’s prefectural and city administrations — a Hashimoto priority, which he estimates will reduce the number of public workers by 20% and expenses by $1.3 billion. His reforms in Osaka, he believes, can set an example for the rest of the country. Breaking the cozy ties between political parties and vested interests, from industry groups to labor unions to farmers’ associations, is the only solution for Japan’s problems, he contends. “We have to do things that those groups hate,” he says.
Yet his strong-arm tactics are also stirring controversy. In February, Hashimoto upset many in Osaka when his administration mandated that teachers sing the national anthem at school ceremonies, a practice many Japanese avoid since they believe it harks back to the country’s militaristic past. In August, he sparked a firestorm by insisting that “there is no evidence that people called comfort women” — the sex slaves drafted to serve Japanese soldiers during World War II — “were taken away by violence or threat by the military.” Such antics have led his critics to describe his methods as Hashism, a play on fascism. Mikio Araki, a long-serving member of Osaka’s city council from the LDP, says Hashimoto acts “like a dictator.”
That, however, is exactly why voters like him. “He is the first politician who does things the way it should be done,” says Ryosuke Matsui, an Osaka real estate agent. “If Hashimoto is called a dictator, that’s fine with me.”
The Risk Takers Reina Otsuka, 32, speaks much more softly than Hashimoto, but her voice is no less powerful. After attending Hitotsubashi University in Tokyo, one of the nation’s best, Otsuka, like most top graduates, could have pursued a stable job within the government bureaucracy or a major corporation. But to Otsuka, the “Japanese dream” didn’t seem so dreamy. The lifetime employment that was once a given at large companies is now history. Besides, Otsuka wanted a family as well as a career — a lifestyle that Japan’s big firms render nearly impossible by demanding long hours and promoting women only rarely. So Otsuka chose a different path: she became an entrepreneur. In 2006 she launched eco+waza, which markets eco-friendly Japanese products to consumers and distributors around the world.
It wasn’t easy. Her parents pressed her to join an established company. “My parents thought I was nuts,” Otsuka says. And with hardly any Silicon Valley — style venture capital available in Japan, she used more than $30,000 of her own savings to start eco+waza. But the thought of working for corporate Japan was more daunting. “We see that people in their 40s are defeated,” she says, her 2-month-old baby sleeping at her side. “A lot of people of my generation see that, and we want to start our own companies.”
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Helping them do so has become the personal mission of William Saito. U.S.-born Saito, then in his 20s, started a company that developed security software, which he sold to Microsoft in 2004. A year later he relocated to Japan to persuade others to follow in his entrepreneurial footsteps. In April, IMPACT Japan, an organization co-founded by Saito that promotes entrepreneurship, helped open Creative Lounge MOV, a gathering place and funky office space in Tokyo’s hip Shibuya area for youngsters looking to start companies. In an attempt to re-create the venture-capital system of the U.S., Saito consults and invests in start-ups through his firm InTecur. In January, he was appointed to a subcommittee of the Prime Minister’s new Council on National Strategy and Policy, where he argues for greater entrepreneurial spirit as a means to fix the economy. Since Japan already has top universities and technology, Saito believes the hard part of building a more creative society has already been accomplished. “The intellect and innovation is here,” says Saito, 41. “The last mile is not a very difficult thing.”
Finishing that mile, though, sounds more like running a marathon. In Saito’s view, making Japan more entrepreneurial requires an overhaul of a society that conditions people from a young age to fear risk. The exam-obsessed education system stifles independent thinking while instilling a highly competitive atmosphere. The need to attend cram schools — after-hours classes that drill young Japanese to pass tough college-entrance exams — deprives kids of the time to explore hobbies and communicate with peers. The result, says Saito, is a country that in reality is very different from its self-image. Instead of sustaining a culture based on consensus and cooperation, the cutthroat education process has made it impossible for Japanese to trust one another. “You created a society that can no longer work together,” he says. “You are mentally programmed to hate each other.”
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Most of all, by stigmatizing those who fail — at their exams, in the office — the system has squelched entrepreneurship, stopping people from taking chances. “That has been the biggest problem with Japan,” says Saito. “You cannot have innovation without failure.” Changing such fundamental aspects of Japan won’t come easily, but Saito believes the desperate economic conditions are finally making some Japanese more willing to take risks. “People are looking for avenues and options,” he says. “There is a new perfect storm where we have students, entrepreneurs, even people in their middle age that are saying, I realize that there is a better world outside of this rat race.”
“Strange People” It’s not only young Japanese who are trying to make a difference. Yanai of Fast Retailing is 63 years old, but he is striving to recapture the swashbuckling spirit that animated the corporate Japan of his youth. While some big Japanese firms are retreating from the global marketplace — Nomura, for one, said in September that two-thirds of its planned $1 billion in cost cuts would come from the investment bank’s American and European operations — Yanai is making greater efforts to conquer it. In 2005, he attempted to break into the hotly contested U.S. retail market by opening three Uniqlo stores in New Jersey shopping malls. Failing to get attention for his unfamiliar brand or basic casual wear, he closed them a year later — but refused to give up. Learning from his mistakes, he relaunched his assault on the U.S. in 2011 with higher-profile stores, starting with a flagship shop on Fifth Avenue in Manhattan. Uniqlo now has five outlets in the U.S. and is targeting 200 by 2020. “Japan has to rechallenge the global market,” he says. If it doesn’t, “all we would end up with is deterioration.”
Encouraged by a strong yen and the slow economy, some Japanese companies are buying up foreign firms at a record pace — trading house Marubeni’s $5.6 billion acquisition of U.S. grain merchandiser Gavilon and advertising giant Dentsu’s $5 billion purchase of Britain’s Aegis are two of the more notable deals. But in other ways, Yanai remains a corporate oddball. Unlike his peers, Yanai recruits year round and doesn’t automatically hire grads from a handful of top universities, preferring to cast a broader net. To support his global ambitions, he seeks staffers with skills not normally desired by corporate Japan, such as foreign languages and overseas experience, and he hires non-Japanese on equal terms with local employees. “Japanese companies still would like to remain in the warm water of working with Japanese people,” Yanai says. But “if you are truly serious about expanding the business, you have to have diversity.” He had hoped that other Japanese CEOs would take his lead, but has been disappointed. “We thought we were going to revolutionize human resources, but other Japanese companies don’t seem to be interested,” he says. “We are regarded to be a weirdo.”
If Japan is to resurrect itself, practices long considered distasteful or odd will have to become the new normal. Saito believes that the process is finally under way. “We have a pretty good community who in the Japanese parlance are ‘strange people,’ who are willing to shake things up,” he says. The goal is “changing one person at a time.” Perhaps one day that will add up to an entire nation.
—with reporting by Chie Kobayashi / Tokyo
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