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This characteristic finds an echo in business conduct. Western executives are often perplexed and sometimes misled by the extreme reluctance of the courteous Japanese to answer any suggestion with a flat no. Japanese are equally shocked by Western bluntness. Yoshio Terazawa, executive vice president of U.S. operations for Nomura Securities, a giant brokerage house, recalls the dismay of a colleague who watched an American lawyer spend hours haggling over the fine print of a contract. In Japan, such matters would be settled by gentlemen's agreement.
Another element in Japan's economic psychology is its long history of cultural isolation. When the nation was finally opened to the West a century ago, the Japanese felt a morbid fear that they were behind the rest of the world and a compulsive drive to catch up. In that drive, the World War II defeat and the U.S. occupation turned into a major plus. Occupation authorities purged the old, politically oriented heads of Japanese businesses, replacing them with well-trained technicians who had learned many lessons during the war. (Today's superb Japanese camera lenses, for example, are the end result of wartime research into range finders.)
Advantages of Being in Hock
Forbidden by the American-imposed constitution to buy modern weaponry, Japan has been able to concentrate investment on automated industry. The destruction of its factories by wartime bombing left it free to rebuild with the latest technology. To do that quickly, the new industrialists bought patents and licenses from everywhere. Says Shigeo Nagano, chairman of Nippon Steel, which today produces more tonnage than any other company in the world: "So long as we had to start from nothing, we wanted the most modern plant. We selected the cream of the world's technology. We learned from America, Germany. Austria and the Soviet Union, and adapted their methods in our own way." In particular, the Japanese developed a strategy of looking for "technological gaps"—advances that were not being fully exploited in the West. The oxygen steelmaking process, for example, was developed in Austria, but Nagano and his colleagues were quicker to appreciate its quality and cost-saving features than their Western rivals were. More than 80% of Japan's steel is now made in oxygen furnaces, the highest proportion in the world.
Faced with a severe postwar capital famine, all industry had to borrow heavily from government-regulated banks. Even today, Japanese companies generally get more than 80% of their financing from loans and less than 20% from sale of stock—about the opposite of the ratio in the U.S. Nagano estimates that Nippon Steel's debt is equal to what four or five American steel companies would owe. To a Western executive that might seem to leave the economy extremely vulnerable to a Penn Central-type collapse. Japanese find that being in hock has its advantages: corporate Pooh-Bahs do not have to worry about paying high dividends or showing plump profits to keep stockholders happy.
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