As Obama Prepares to Take Over the Auto Industry, It's the Japanese Who Can Save U.S. Jobs
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Editor's Note: The original version of this article was published March 29 in the Seattle Times.
Today, President [Barack] Obama announced that the United States government is effectively taking over General Motors and Chrysler and considering bankruptcy.
But while Japanese automaker Toyota is also taking a hit as global auto sales slump, analysts expect Toyota to ultimately prevail. It's not just the Prius. Another type of hybrid built into Japan's economic model blends corporate interest with the common good. Japan's cooperative capitalism is the key to Toyota's future -- and ideally America's, too.
Promoting his stimulus package, Obama said, "If you delay acting on an economy of this severity, [it potentially] becomes much more difficult for us to get out of. We saw this happen in Japan in the 1990s, where they suffered what was called the 'lost decade.' "
Yet while Japan has been used as a cautionary tale, in many ways even at the peak of its recession Japan, remained better off than the United States today.
Japan did not see its middle class disappear into swelling rates of poverty and unemployment. And Japan was not plagued by growing class resentment. Its inequality remained modest, and its large corporations did not have bloated CEO salaries, including at those firms receiving government aid.
Why? Despite some changes in recent years, most large Japanese corporations still practice a form of capitalism in which different groups with a stake in the enterprise -- owners, employees, managers, suppliers, creditors -- work together to create value.
Cooperation is possible because the various stakeholders have made long-term commitments to the firm. The result is a more holistic corporation, balancing short-term opportunities with long-term needs.
A large company in Japan is less likely to lay off thousands of employees simply to help its share price or to gut pension benefits to pay out higher dividends. In other words, Japanese corporations contribute to the common good rather than compete with it.
American corporations (including banks), under pressure from speculative investors, prioritize driving up short-term stock prices and dividends. Executives are "aligned" with shareholder interests through stock-based compensation.
But this creates an incentive for executives to boost their own compensation by taking excessive risks and by manipulating share prices. Ultimately this harms the long-term health of companies, and thus the long-term health of America's economy.
Toyota, for instance, refused to line investors' pockets, and instead reinvested profits in capital improvements and in research and development, which led to the hybrid.
By contrast, through the late 1990s, GM funneled billions of its profits to shareholders -- as dividends and share buybacks -- a fact often overlooked in discussions of what went wrong in Detroit.
In stakeholder capitalism, employees participate in corporate decision-making. While unions in both Japan and the United States have declined in recent years, the level of unionization in the United States today is about half that in Japan. And in nonunion Japanese corporations, human capital still is valued more deeply. Senior human-resources executives are far more influential than in comparable American companies, where chief financial officers rule the roost.
And when corporations function as teams, fairness becomes an instinctive priority. In the United States in 2006, the average CEO earned more than 364 times the average U.S. worker -- a huge increase from, say, 1980, when the differential was just 40 times more.
Japan, on the other hand, has one of the lowest CEO pay gaps in the world, with chief executives earning on average 10 times more than the average worker.