Capitalism, then, is by nature a form or method of economic change and not only never is but never can be stationary. … The opening up of new markets, foreign or domestic, and the organizational development from the craft shop and factory to such concerns as US Steel illustrate the same process of industrial mutation—if I may use that biological term—that incessantly revolutionizes the economic structure from within, incessantly destroying the old one, incessantly creating a new one. This process of Creative Destruction is the essential fact about capitalism.

Capitalism, Socialism, and Democracy, Joseph Schumpeter (1942)

Omuta kept its pre-trip promise to be a different kind of town as soon as I crossed the city limits and came across this brace of beauties, a pair of modern genius loci guarding the spirit of the place.

In scrap-and-build, tidy-it-away, spick-and-span Japan, sights of the vintage of the 1981 Nissan Cedric on the right, to say nothing of the 1969 Toyota Crown on the left, rotting by the roadside under a crumbling ceiling, are vanishingly rare. Heartened, I pressed on.

Omuta is an old coal town: the stones that burn with a flame are said to have been discovered as long ago as 1469. Mining was industrialized across the Mitsui Miike coalfields in the late 19th century but the post-WWII history was grim: massive strikes rocked the region from 1953 to 1960 against redundancy programs and then in 1963 a dust explosion left 458 miners dead in Japan’s worst postwar industrial disaster. A mine fire in 1983 took the lives of another 83 colliers and the last mine closed in March 1997. But coal had attracted an array of chemical and other heavy industrial firms, many linked to the mighty Mitsui combine, and the loss of coal did not bring on complete collapse.

Nevertheless, there’s precious little hiring going on down at the docks, where in January 2009 Mitsui Chemicals shuttered a huge facility for the production of toluene diisocyanate, a key ingredient in polyurethane, wracked by the collapse in global trade. Omuta’s current claim to notoriety is that it is bleeding people faster than any other city of its size in the country: 15,000 out of a starting population of 138,000 in the last decade alone, with the population projected to fall to below 83,000 by 2035.

Driving the city streets, Omuta felt like a patient in the last stages of terminal cancer, skin and bones clad in clothes now many sizes too large: half of everything could be torn down and carted away and it would have no impact on what life remains in the city. But where were the shopping arcades decried by Professor Ito in his Ugly Japan report?

Stopping at the main station to orient myself, I noted with shock the absence of a convenience store and later came to learn there were none at all downtown, so atrophied has it become—this in a country where the biggest six operators have nearly 40,000 outlets between them, where there is at least one store for every 2,000 people.

Rather than radiating out from the station, as is often the case, the shopping arcades of Omuta were a few hundred meters distant from it, which may have in part been behind their decay into their present pitiful state.

Meandering across five blocks, the drear arcades of New Ginza, built around the apogee of the town’s prosperity in the late 1950s, had been named in a provincial kowtow to The Ginza, the still swanky shopping and entertainment district of central Tokyo. Time has mocked the pretensions of the namer. I caught a Ginza sign reflected in sodden street stones.

Each block has just one surviving store: in the first, the man behind the counter of a school outfitter had given up all pretence of busyness and was fiddling blankly with his mobile phone.

In the second, a greengrocer’s with bowed shelves and random produce soldiered on.

In the third, the beautician’s sign under the rotting vaults boasted of full air-conditioning.

Here and there, small fires had broken out, charring wood and melting wires.

In places the cheap plastic roof had caved in, stripping the arcades of their shelter.

In the fourth block, the sole survivor was a mercer’s, a term now so obscure in English that for most it requires explanation: in a Japanese context, it refers to a dealer in kimono silks. According to the Ministry of Internal Affairs’ Family Income and Expenditure Survey, average annual household spending on Japanese clothing (mainly kimonos) tumbled 85% between 1990 and 2009, to around Y3,000 (about $35) from around Y20,000. Spending on all clothing and footwear is down by 43% over the same period, to around Y165,000 (about $1,900) from Y290,000.

I attempted to engage the proprietor in conversation.

“It’s lost its vitality, this street.”

“I suppose.”

“When did everyone start shutting up shop?”

“About thirty years ago. One by one. Business is slow.”

I asked to take her portrait, but she recoiled in horror and hid behind her racks like a hunted animal until I took pity and gave up.

At the top of the fifth block, I was caught trying to steal a snap of the last store standing, a tea emporium exuding an elegance wholly out of kilter with its surroundings, and got snarled at by a tiny grandma and her yappy dog for my sins.

Arcades of the vintage and debility of New Ginza are now rare but not extinct across the land: not long ago, NHK aired a 30-minute documentary on the last denizens of a very similar one in Kita Kyushu, Japan’s first post-million city. They’re to be found above all, I suspect, in big, rusty ports long past their prime, places like Kure in Hiroshima, Iwaki in Fukushima, and Ishinomaki in Miyagi.

New Ginza was merely the entrée, however; the plat principal came in the arcades leading off it, which went by a variety of names: Sun Route, Gallery, and Ginza yet again. These arcades were thrown up in the early 1980s, but scarcely a shop survives.

Whole blocks have already been razed into wilderness, leaving only the skeletal frames of the arcades themselves to give scant shelter to pedestrians.

At one end of the Gallery arcade stood pachinko parlor L’aimant and its karaoke parlor Santa Claus (motto: “Let’s enjoy Santa Claus!”) Four stories of car parking above the shop had not been enough to save either.

Parlor Lucky is hanging on.

But the rows of empty seats say its luck will soon be running out.

It might seem to go against everything we’ve just witnessed, but according to the latest Census on Commerce from the Ministry of Economy, Trade, and Industry, mom and pop shops (which I’ll define as outfits with up to four workers, thereby excluding convenience stores, which tend to have 10-20 full- and part-time workers on their books) still accounted for 775,000 (68%) of Japan’s 1.14mn retailers (one for every 111 people) in 2007, ringing up Y20.2trn (15%) of total retail sales of Y135trn.

The absolute number of retail outlets peaked in 1982 and is now lower than at any time since data collection began in 1952. While the number of corporate-owned stores, which have been declining since 1999, fell by only 2.3% between the 2007 survey and the previous one in 2004, the number of stores owned by individuals, which have been declining since 1982, when there were a total of 1.72mn stores, a third more than today, fell a staggering 13.4% in just three years.

Total retail sales in Japan topped out at Y147.7trn in 1997 and are off nearly 9% since; although sales rose 1.1% in 2007 from the 2004 survey, this was mainly due to soaring gasoline prices; sales at the smallest mom and pop stores, those with one or two workers, fell 3.6% in just three years.

These, then, are some of the bald statistics behind the desolation. Strangely enough, the United States might be said to share some of the responsibility for the hollowing out of countless downtowns across Japan; to find out why, let’s rewind the clock to 1937, when the first ever piece of legislation to protect small shopkeepers, the Department Store Law, was enacted by the Imperial Diet at the behest of smaller retailers worried by what were then the dominant threat to their position, department stores. The law was repealed by the Allied occupation forces in 1947 but swiftly reenacted in 1956 once they had left.

By the late 1960s, however, new superstores had discovered a way to drive a coach and horses though the Department Store Law’s 1,500m2 threshold, above which store opening permits were required, by creating separate legal entities, each below the threshold and operating on different floors of the same building but under a common corporate identity. Small shopkeepers squealed, the ruling Liberal Democratic Party, for which they were an important source of votes, listened, and the bureaucrats at the Ministry of International Trade and Industry (MITI) drafted the Large-scale Retail Sales Law (LSL), often assigned the adjective “notorious” in US trade circles in the 1980s, which came into effect in 1974. By the time of its even stricter 1979 amended incarnation, the LSL imposed a formidable set of obstacles to opening stores with anything more than 500m2 of floor space. A process of notification and adjustment afforded small shopkeepers a powerful temporizing tool and in some instances an effective veto on new larger stores in their neighborhoods. Larger new stores took an average of 34 months to open, and where opposition was particularly vehement, much longer: general merchandiser Ito-Yokado applied to open an outlet in Shizuoka City in December 1976, with the outlet finally opening in May 1986, nearly a decade later.

In the US-Japan trade disputes of the 1980s, the LSL climbed to the top of the agenda as a key non-tariff barrier, with the US side initially pushing for liberalization in the expectation that larger retailers would be more open to selling imported goods and then pushing for direct market access for US retail giants. This textbook piece of gaiatsu (foreign pressure) was neatly aligned with the interests of Japan’s own large store operators and also according to some sources with champions of deregulation within the MITI bureaucracy.

The LSL was defanged from 1990 to 1994 in three stages, resulting in a shortening of application processes, greater flexibility on opening hours, a much reduced consultative role for small shopkeepers, and deregulation in principle of stores with less than 1,000m2 of floor space. The results were predictable: the sales floor area of large-scale stores surged some 80% from 1988 to 2001.

In 1995-1996, the US, emboldened by success, pushed for the complete abolition of the LSL by 2000, taking Japan to the WTO, where it lost. MITI, however, concerned that the law might still be in violation of Japan’s WTO commitments under the General Agreement on Trade in Services (GATS), buckled and the LSL was replaced in 2000 with the (MITI-designed) Large-scale Retail Store Location Law. On the surface, this represented a further defeat for small shopkeepers, as the focus of the law shifted to the physical environment—parking, noise, garbage—surrounding a new store rather than their protection. In practice, there remain unofficial ways for small shopkeepers to act in concert with local governments to at least increase the cost burden of large store openings, if not thwart them entirely. Some 3mn m2 of large-store floor space was being added annually by the middle of the last decade, a slower pace of growth than in the 1990s, but that sluggishness was likely due to growing saturation.

Three conclusions stand out: first, despite seven decades of protective legislation and regulation of varying ferocity, the slow-burning demise of the mom and pop store over the last three decades has been inexorable. The pace of decline in the number of stores with fewer than four workers slowed in the late 1980s under the accommodating wings of the LSL but also slowed again in the late 1990s, suggesting that the rate of contraction owes less to the actions of lawmakers and mandarins than to the business cycle and to the remorseless forces of suburbanization and motorization.

Is there space to shed a tear or two for the passing of small storekeepers from all but their last bastions, the big cities and the deep countryside? No doubt there is, although the process of their passing will in many cases have been less gruesome than implied by Professor Ito’s “shopping arcades of a thousand bankruptcies”, as the sons and daughters of elderly shopkeepers found more comfortable avenues for their lives and politely declined their back-breaking inheritances. Their passing is part of the restless process of creative destruction integral to capitalism, and Japan is in some ways—from its threadbare welfare nets and its Victorian insistence on the dignity of labor to its exceptionally low income taxes, consumption taxes, and tax-to-GDP ratio—an exemplary capitalist state, too exemplary for some. Here’s Schumpeter, writing with great prescience in 1942 on the future of retail, a future that came last to these shores:

In the case of retail trade the competition that matters arises not from additional shops of the same type, but from the department store, the chain store, the mail-order house and the supermarket which are bound to destroy those pyramids [of traditional retailers] sooner or later.

The second conclusion is that if the US aimed to establish a beachhead for its big-box retailers through the watering down of regulations, it has failed abjectly. The longest run of success was enjoyed by Toys “R” Us, the first to arrive (in 1991), which faced—and still faces—no organized competition at all, allowing it to build out a network of 167 stores. The listed Japan subsidiary fell deep into the red in the recent recession, however, and was taken private by the US parent in late 2009. Many of the largest US retailers, names such as Home Depot and Best Buy, Target and Walgreen, sensibly never ventured here. Of those that did, Wal-Mart has struggled ever since acquiring sixth-largest general merchandiser Seiyu in 2002 and Costco has just nine outlets. Japan has long been an elephant’s graveyard of overseas retailers, both from the US and elsewhere: Office Depot (1997-2009), Office Max (1997-2001), Carrefour (2000-2005), Sephora (1997-2001), and Boots (1999-2001), to name a few, although that doesn’t deter some from trying: Tesco finally dipped a cautious toe in under its own brand in 2007. The reasons for their collective troubles and failures are many and varied, and we’ll gloss over them here: suffice it to say that foreign retailers account for far fewer than 1% of retail stores and less than 5% of retail sales. The barbarians have been kept at bay.

The third conclusion—brutal but inescapable—comes courtesy of the dismal science: the process of creative destruction has not gone nearly far enough, in retail as in most sectors of the economy. Japan still has about as many retailers as the US, even though it is only the size of California and only has roughly a third of the population. Debt-ravaged zombie monsters Daiei and Mycal, once the largest and fourth-largest retailers in the land, were indulgently allowed to stagger on for far too long. The specialty supermarket subsector, which accounts for roughly a quarter of all retail sales, remains hugely fragmented, with dozens of listed supermarket operators and scores more unlisted, testimony to the aversion to M&A in general and the hostile takeover in particular, thwarting economies of scale, keeping prices high, retarding innovation, and depressing profits, the lifeblood of the economy.

The very biggest retailers, Seven & i Holdings and Aeon, are toddlers on the world stage, ranking 14th and 16th by sales, and are hideous agglomerations of firms seemingly acquired in a fit of absence of mind that would make professors of business weep. Aeon, which has barely any brand identity itself, operates supermarkets under six different brands, none its own, and has by its own admission 169 subsidiaries, of which 88 are major ones and 33 listed ones, with all the inefficiencies and expenses listing entails. Subsidiaries include ones in areas unlikely to be core competencies, such as pet stores, cinemas, shoe shops, bento lunchbox vendors, and Laura Ashley Japan. [Tesco, whose sales are twice those of Aeon, has only one brand and owns up to just 22 principal subsidiaries, most of which are for operations in far-flung places such as Turkey, Slovakia, and Thailand.]

Because of the convoluted capital structure, much of the little profit Aeon makes bleeds away in minority interest to shareholders in the listed subsidiaries, resulting in a razor-thin net profit margin, just 0.6% in the year to February 2010, although that was an improvement from the red ink of the year before. The balance sheet is bloated with poorly performing assets and drowning in debt, so Aeon continually stiffs its shareholders with dilutive share and convertible bond offerings. Shareholders these days are no longer the bowler-hatted pig-faced thugs of a George Grosz caricature; almost every working adult in Japan has a stake in Aeon, however small, via the state pension funds. Aeon is a tile in the mosaic that explains why Japanese household financial assets only rose by 40% in the “two lost decades”, while they tripled in the US. Unanswerable to anyone and with barely any financial interest in their own company, Aeon management can pursue its foolish dreams of empire building and of vaulting into the ranks of the world’s top 10 retailers by sales, as if that mattered a jot.

By any conventional financial metric going—return on assets, return on equity, or return on capital employed, for example—debt-dogged and barely profitable Aeon is a basket case. Its purpose in existing, other than to buff the egos of its managers, seems to be to generate thousands upon thousands (over 70,000 at the last count) of mainly poor-quality, low-wage jobs. Mr. Market is none too impressed, either, having clipped two-thirds off the share price since a 2006 peak. Aeon is ripe for takeover and dismemberment, especially by foreigners, but this is Japan, where such thoughts are simply untenable. The grievous misallocation of capital, the stunning lack of adventurousness, and the insanely misguided focus on the top-line to the exclusion of the bottom-line epitomized by the likes of Aeon has ensured that Japan never quite got the economy it in many ways deserved—and sad to say, it’s too late now.

***************

But we’ve strayed a long way from Omuta. I checked into the gardenless Omuta Garden Hotel as the rain kicked up a storm. For reasons that in recollection entirely baffle me, I decided to open the window as soon as I entered the room, to be met with sworls of water muscling through the six inches of aperture the window allowed, only to find that the hinge arm at the bottom of the window had jammed open. Joggling the elbow of the hinge and pulling in on the lever at the same time shut the window at the expense of a forefinger, which got trapped in the closing window and began to ooze blood. Instinctively, I thrust the window open, only for it to jam again. Liberating a towel from the bathroom in which to wrap my hand, I tried again, more gently and with success.

After mopping up, I took a relieved pee seated, Japanese-style, only to be deceived—yet again—by the tiny toilet bowl into urinating all over the floor. The towel was pressed into more service: I had been in the room five minutes and already it was drenched in rainwater and filthy with grime, grease, blood, and piss. No wonder many Japanese hoteliers have their reservations about foreign guests.

As dusk stole in through the shadows back down at the arcades, something was astir: knots of young people gathered outside long-shuttered stores. A preteen hip-hop duo practiced their moves to an old beatbox and an upturned umbrella.

Stussied-up hiphopsters acting ’hood they may have been, but they weren’t averse to chucking a bit of air guitar into their shtick.

The knots of girls had coalesced into a marching troupe rehearsing for Daijayama (Big Snake Mountain), Omuta’s showpiece summer festival, in a half-empty car park by Pachinko L’aimant.

The knots of boys, meanwhile, fanned out through the arcades, taiko drums in tow. They too were rehearsing for the festival. Taiko drumming to this observer is the most erotic act the Japanese male performs with his clothes on, perhaps even regardless of his state of dress or undress.

Elsewhere, younger taiko kids received tuition from their elders and queued patiently for their turn at the skins as bystanders gathered to watch and the arcades, so dead in the daytime, came to pulse to the heartbeat of taiko life.

Back by Parlor Lucky, evening classes were in full swing at a baggy hiphop dance studio.

Next door, a boxing gym had opened up for sparring after school or work.

As with so many hardscrabble towns the world over, it seemed as though for the youth of Omuta there were only two ways out: dance your way out or fight your way out.

So were Professor Ito’s “shopping arcades of a thousand bankruptcies” ugly? Not to me: by rainswept day their epic melancholy transcended the merely ugly, while by this sweltering summer night, at least, they breathed with the spontaneity of the new and the resilience of tradition.

The next morning I woke to rain: today’s rain was not the fierce but flighty rain of the previous evening but a pounding and implacable rain, a fuck-you-and-your-plans rain, a rain that said it was here to stay. The skies were the same unrelenting gray in every direction, offering no chink of hope, and the rain on the window made the unlovely rooftop cityscape bleed watery tears. I was trapped, waterlogged, in Omuta.

After a couple of hours loafing around watching the rain lash down, cabin fever set in and I set out. Embrace the rain, I told myself, befriend it. After all, how could you come all this way to Omuta and miss out on Navel Land?

Ah, Navel Land, Navel Land, Navel Land. No matter how you say it, it doesn’t get any better. And no, it’s not a typo for a theme park with a nautical twist; they really did name it Navel Land. You see, if you gaze at a map of Kyushu and strain every fiber of your imagination, then it comes to look like a fetus, with two little feet kicking out at the bottom, Nagasaki the head, and Omuta, yes, Omuta the navel. Making this up? If only I were.

In No Miracles Here: Fighting Urban Decline in Japan and the United States (2001), a cross-cultural comparison of attempts to revive Omuta and Flint, Michigan, Theodore J. Gilman claims the name was also inspired by Omuta’s heritage of coal, dug from the belly of the earth, and by Navel Land being a centerpiece “belly-button project” (臍事業) for the town, although this phrase seems to barely exist in Japanese. Hard to credit, but the name could have been worse: one of the consulting firms tapped in the planning stages wanted to christen it GeoBio World’s Weird Gnome Nation.

Mr. Gilman reports that the idea for Navel Land surfaced in 1988, inspired by the success of Tokyo Disneyland: “The planning office walls in Omuta are sprinkled with Disney maps and posters, and souvenir dwarves sit on the desks.” The initial concept of what was to be called GeoBio World was earnest: the Geo Zone was to have a coal and underground theme, while the Bio Zone was to celebrate the ocean, playing to Omuta’s location on the Ariake Sea, but such high seriousness was toned down by the consultants. Funds poured in from the city, the prefecture, the central government, firms in the Mitsui combine, and the usual Kyushu stalwarts, Bank of Fukuoka, Japan Rail Kyushu, and Kyushu Electric Power. A succession of proposals was rejected by Japan Development Bank, the key backer, however, and with time dragging on and the economic winds growing chillier, Omuta finally took control of the project. Navel Land ultimately opened in July 1995, having cost a cool $100mn or so, with an attendance projection of 600,000 a year.

Down toward the port on a lightly trafficked stretch of dual carriageway, the Navel Land parking lot had been turned by the endless rain into a shallow lake, dotted with islands.

Even by the wretched underachiever standards of the limply conceived theme parks of these islands, Navel Land was a monumental flop. It attracted some 440,000 visitors in its first year, but all went downhill from there and it closed on Christmas Day, 1998. Its deathspan as a ruin is now three times its lifespan as a park, and rising.

The mock Tudorbethan stylings of the entrance, gift shop, and restaurant complex pay homage to Omuta’s Mitsui Port Club, built in 1907-1908 together with the port as a retreat for Mitsui executives and guesthouse for visiting dignitaries, making it an architectural pastiche of a pastiche.

The clock above the entrance had stopped at 10 past eight. Eerily, other clocks in the park showed the same hour. Was that really the time that fateful Christmas night back in 1998 when the electrocutioner’s switch was flicked, convulsing the body of the park into a corpse? And just what was a theme park doing with clocks anyway—aren’t such places meant to be precious spaces into which noisome time should not intrude? Perhaps the clocks, by reminding revelers of the pressures of the humdrum from which they had hoped to escape, played a part in the park’s downfall.

Failed and struggling theme parks fall into two categories: those with lamentably weak concepts, such as Huis ten Bosch (which we’ll come to in a later post), inspired by the Dutch Golden Age, and those left by chaotic and conflicted planning with simply no concept at all. Navel Land was in the latter camp. What, for Buddha’s sake, was this beached Fin Whale doing at the entrance, growing a green beard of grass and grinning a plutocrat’s grin?

The boy and girl polkadot dragon “image characters”, sanitized for your protection, trace their roots through the Big Snake Mountain festival, which features fire-spitting dragons, back to local dragon-god cults of the 17th century.

By the entrance, the silver skeleton of a bicycle lay in silent repose.

Part of the park had been requisitioned by the adjacent Coal History Museum to store disused mining gear; instead of coils of barbed wire and searchlights, there were only sagging ropes to keep the curious out. Why, it was practically an invitation to trespass, especially as Kiddy Land beckoned so invitingly.

With everything removable from the attractions gone, it was hard to tell how enjoyable the Battery Cars, the Swingaround (a teacup ride), Columbus (a rocking pirate ship), and the Dream Carousel might have been. The drowning goggled rafter crying for help in the background of this peeling sign didn’t seem to be having too much fun.

A graffiti of immortal thug Tupac graced the entrance to the aquarium. Kids in Omuta take their old-school rappers seriously, it seems, though thankfully they’re not likely to die in a drive-by at 25 nor to cause as much grief as Shakur did in his short spell.

Sunken chairs at the neighboring restaurant convinced me not to tread the boardwalks any further.

Over at the plant pavilion, trees and shrubs were making an anguished bid for freedom, but there was to be no escape.

Lighting fixtures with cement shoes, perhaps toppled by a typhoon, had created an accidental flowerpot.

I bid the polkadot dragons a sad farewell.

***************

Like any country peered at and prodded and pored over long enough, Japan can be anything the watcher wants it to be. There’s no better—or funnier—illustration of the dizzying kaleidoscope of the conclusions of “experts” than a post that once appeared at the long-defunct Dead Fukuzawa Society discussion group on things Japanese, in the days before the Internet was tarted up and dumbed down. An average US citizen is imagined to be asking a panel of Japan specialists what he or she should know about the country.

Answer: Well, any well-informed person should know that…

It’s a peaceful state.

– Edwin O. Reischauer

It’s a belligerent state!

– Tag O’Conroy

It’s a highly nuanced state.

– Ruth Benedict

It’s a highly simplistic state!

– James Clavell

It’s a headless state.

– Karl van Wolferen

It’s a democratic state!

– George Packard

It’s a mentally repressed state!

– Masao Miyamoto

It’s just a boring state.

– Henry Kissenger

More like a US protectorate, not a state

– Ivan Brezinski

Or should we call it an entrepreneurial state?

– Edward Lincoln

Actually, it’s a capitalist developmental state.

– Chalmers Johnson

More like a bankrupt state lately.

– Gary Saxonhouse

Or a crony capitalist state, to be exact.

– Jake Schlessinger

Let’s just call it the headquarters state.

– Leon Hollerman

A corporate state, really, the beginning of a “Japan Inc.”

– James Abegglen

Which lasted 5 minutes before we had the end of “Japan, Inc.”

– Christopher Wood

Making it, yes, a soured state…

– Richard Katz

Or perhaps just a normal state, after all.

– Hugh Patrick

But a misunderstood state, nonetheless.

– Bill Emmott

[You can read the full post here.]

No abstract noun vexes and divides the experts more than “change”. “Japan must change its ways if it is to navigate a passage through the turbulent waters of the coming years,” thunder the editorials. “The advent of a new administration proves Japan has changed beyond all recognition since the days of the Iron Triangle,” trumpet the essays on the op-ed pages. “More than anywhere, Japan needs change to come its backward-looking institutions so it can harness the dynamism of its people and rise to the challenges of the new century,” opine the authors of letters to the editor.

Here’s Professor Jeff Kingston, writing in his just published Contemporary Japan: History, Politics, and Social Change since the 1980s:

Contemporary Japan is remarkably different from the Japan that existed at the outset of the Heisei era in 1989. All societies change, but the pace and scope of change in Japan has been staggering and deeply unsettling in many ways for its citizens. … Many of the profound changes in Japan go largely unnoticed, because this transformation is gradual and incremental, being built brick by brick, law by law, through regulation and deregulation. Each initiative taken on its own seems of little import, but when placed in the larger mosaic of reform, the shape of this sweeping transformation emerges, clarified by the passage of time.

And here’s the—inevitably but still regrettably anonymous—reviewer in The Economist, writing in response on August 21:

Mr Kingston believes that Japan can get itself out of trouble and that change is taking place. But the country is remarkable for dodging its biggest concerns. … And, like other scholars of Japan, Mr Kingston fails to solve the mystery of why the country finds reform so difficult. Change is still a four-letter word in Japan. … What will replace [its 20th century system] is unknown. That, though Mr Kingston does not quite say so, is the reason for Japan’s near-paralysis.

Japan’s sweeping transformation? Japan’s near-paralysis? How can it be possible that these two observers are looking at the same country? Perspective is part of the answer: Professor Kingston is writing from the liberal (in the US sense) halls of academia, with a focus on society, while the Economist reviewer is writing from a liberal (in the UK sense) bastion, with a focus on the economy. The nebulousness of the word “change”, like its cousins “reform” and “transformation”, is another part of the answer: there are as many flavors of change—technological, demographic, economic, societal, and political are perhaps the overarching five—as there are of ice-cream.

One way to reconcile these polar-opposite conclusions might be to propose a two-speed Japan. As we’ve seen from the shopping arcades of Omuta, down at the bottom of the heap (economic) change is often wrenching. At the top of the heap, firms cosset against this change through celebrated practices such as lifetime employment (終身雇用), seniority based pay (年功序列型賃金), and resistance to mid-career hiring (中途採用). To pervert what has long been my favorite quotation about Japan, from reticent Sicilian nobleman Giuseppe Tomasi di Lampedusa’s only novel, The Leopard, “Everything must change (for you), so that everything stays the same (for us)”.

At the commanding heights of the economy, the lineup of the firms themselves is remarkably unchanging: to find out how so, I compiled a list of Japan’s top 100 firms, from Toyota Motor at number one to Chugoku Electric Power at number 100, as measured by market capitalization on September 24, and quickly traced all their genealogies back as far as I could. These are the companies that aspiring graduates of elite universities jostle to join.

The conclusion: of the 100, 43 have roots in the 19th or earlier centuries, with drugmaker Mitsubishi Tanabe (#84) able to trace its ancestors back to 1678, and another 42 have roots between 1900 and 1950, leaving just 15 founded in the 60 years since 1950.

Some caveats apply: I played fast and loose with the rules, excluding mobile phone operator NTT DoCoMo and IT services firm NTT Data for being spin-outs of the venerable Nippon Telephone and Telegraph but including robot powerhouse Fanuc, also a spin-out, for being qualitatively different from its parent. Naturally, many on the list, such as Nintendo, founded in 1889 as a maker of playing cards, are not in precisely the same line of business as they were at their inception. Of course, many other nations have banks, insurers, and pharmaceutical firms with august lineages. Sure, it takes time to build a vast enterprise from scratch. It is nonetheless noteworthy—disquieting even—that only 15 are younger than pensionable age. Here they are:

#13 Softbank 1981

(Mobile phones) Date of foundation

#18 Fanuc 1972

(Machinery) Date spun-out of Fujitsu (#44)

#26 KDDI 1984

(Mobile phones) Date of foundation as DDI. Constituent company KDD has roots back to 1953

#30 Yahoo Japan 1996

(Internet) Date of foundation by Yahoo! and Softbank (#13)

#36 Kyocera 1959

(Electronic parts) Date of foundation

#43 Fast Retailing 1963

(Apparel) Date of foundation

#53 Nidec 1973

(Electronic components) Date of foundation

#59 Keyence 1974

(Machinery) Date of foundation

#71 Secom 1962

(Security) Date of foundation

#80 Rakuten 1997

(Internet) Date of foundation

#82 SMC 1959

(Machinery) Date of foundation

#85 Tokyo Electron 1963

(Semiconductor manufacturing equipment) Date of foundation by Tokyo Broadcasting, some roots back to 1951

#91 Orix 1964

(Leasing) Date of foundation by what is now Sojitz and the then Sanwa Bank, some roots back to 1950

#95 Oriental Land 1960

(Real estate) Date of foundation

#96 Unicharm 1961

(Toiletries) Date of foundation

Of the top eight, seven have some form of outsider status. Softbank and Yahoo Japan were both the brainchild of an ethnically Korean entrepreneur, Masayoshi Son, while five have their origins and their headquarters far from the locus of power in Tokyo: Fanuc in the foothills of Mount Fuji, Kyocera and Nidec in Kyoto, Keyence in Osaka, and Fast Retailing in the wilds of Yamaguchi. Worryingly, only three were born the 1970s, two in the 1980s, and two in the 1990s, with the last decade unrepresented.

All 15 have certain things in common: they are free of the keiretsu corporate ties that bind, they are far from household names overseas (and a handful are far from household names in Japan), and most interestingly, they are all solidly, in some cases wildly, profitable, with the exception of Tokyo Electron, which has the misfortune to be in as cyclical an industry as any that exists.

They are not all dazzling centerfold models of corporate perfection, by any means—Softbank, for instance, is adrift in debt up to its eyeballs—but at their best they have a feistiness not often found elsewhere. An SMC representative was captured on camera by NHK last week attempting to source cheaper components from South Korea, an act that would be regarded as tantamount to treason at a Toyota or a Toshiba. Fast Retailing is unique in its embrace of foreigner hiring for fast-track career positions. At Keyence’s Osaka headquarters, low stone tables are inlaid with trilobites, a cautionary tale of what happens to companies if they ossify.

What are the chances that these 15 will be joined by lower-ranked rule-breakers and game-changers? Looking at the next 100 largest firms and applying the same criteria as above, I found that only 12 out of the 100 were founded since 1960. The list comprises the following:

– A fallen angel unlikely ever to recapture its golden era (component maker Rohm)

– Two convenience store operators (Lawson and FamilyMart) in a saturated market

– Two homebuilders (Sekisui House and Daito Trust) operating in a country where housing starts, around the 1.4mn/year level in the mid-1990s, fell to around the 1.1mn level in the mid-2000s and to just 775,000 in 2009, with no recovery expected anytime soon

– A pachinko machine maker (Sankyo). The number of pachinko parlors in Japan fell 27% in the decade from 1999 to 2009

– A maker of antivirus software (Trend Micro) that has always struggled to compete with the big boys, Symantec and McAffee

– Two retailers (Yamada Denki and Nitori) that may be able to squeeze a few more drops of growth from suburbia

– Two Internet social network and gaming firms (DeNa and Gree) that appear to lack any international ambition and will eventually run out of headroom in Japan

– And one genuine growth prospect, Sysmex, a maker of reagents and equipment for specimen testing

Not, all told, an encouraging collection.

What of the budding entrepreneurs of tomorrow? An April 2010 survey of around 2,000 newly minted corporate freshmen in their early 20s by the Japan Productivity Center provides fodder for despair.

Asked to choose between the following:

(a) “I’d like to stay with my present company for the rest of my working life”, and

(b) “It would be OK to change jobs if the opportunity arose”,

57% of respondents chose (a) and 30% chose (b), a complete reversal from as recently as 2004, when 51% chose (b) and 30% chose (a).

Asked to answer “agree” or “disagree” to the following statement:

“In terms of my future career plan, I’d rather set up my own business and become independent than get on in my present company”,

just 13% agreed and 87% disagreed, with those agreeing having fallen from 32% every single year, good times or bad, since the question was first posed in 2003.

Asked which kind of work they would prefer:

(a) “Work where you form teams with your seniors and other divisions and can share in success”, or

(b) “Work where your own individual effort leads directly to success”,

an overwhelming 85% chose (a), up from 73% in 2000.

Asked how salaries should be determined, either:

(a) “In a system where individual performance and ability have a major impact”, or

(b) “In a system where the emphasis is more on age and experience than performance or ability”,

only 56% chose (a), down from 73% in 2000.

Asked to answer “agree” or “disagree” to the following statement:

“If a company was offering good employment conditions, it would be smart to move to it promptly”,

just 22% agreed, down from 38% in 2000.

Asked to choose from three responses what they thought about changing jobs in the course of their working life:

(a) “It would be better not to”,

(b) “Changing jobs once or twice might be unavoidable if there was a good enough reason”, or

(c) I wouldn’t mind changing jobs however often if there was a good enough reason”,

34% chose (a), up from 19% in 2000, and a mere 12% chose (c), down from 26% in 2000. Notice how negatively the question is couched to begin with.

Asked whether they would prefer to be specialists or generalists (the bane of Japanese companies), a minority (44%) replied that they would rather be specialists, down from 52% in 2000.

A June 2010 Japan Productivity Center survey targeting the same category of corporate freshmen presented respondents with the following scenario:

“If you were told to work overtime one evening when you had a date lined up, what would you do?”

(a) “Give up on the date and do the work”, or

(b) “Say no to the overtime and go on the date”,

85% chose (a) and just 14% chose (b), respectively the highest and lowest percentages since the survey began asking the question back in 1973 and a very different breakdown from the 60/40 split that briefly prevailed in the carefree early 1990s.

Finally, a June 2010 survey on awareness of globalization (by the admittedly less than illustrious Sanno Institute of Management with an admittedly small sample size of 400 businesspeople) asked simply:

“Would you like to work abroad in the future?”

63% of respondents in their twenties said no, exactly the same percentage of respondents in their forties who were disinclined. (Those in their thirties and fifties were still more unenthusiastic about the idea.)

Taken together, these surveys present a sobering picture of twentysomething salarymen drones increasingly terrified of risk, individuation, and difference. This is change indeed, but change in favor of the stupor of the status quo, not at all the change that our professors and reviewers—of whatever ideological stripe—have in mind.

If there is scant hope to be had from the upstart corporate thrusters and none at all from the generation now setting out as adults, then for innovation, entrepreneurship, and creativity, we have to fall back on the ageing colossi, the Sonys (1946) and the Sharps (1935), the Mitsuis (1876) and the Mitsubishis (1873), which is dispiriting, because these are acts they may encourage but rarely reward. The casebook example of this is surely Shuji Nakamura, the inventor in 1993 of the blue LED, who was awarded a princely bonus of around $200 for his toil by his employer, Nichia, who he then pursued through the courts, eventually settling for around $7mn in 2005.

Once so adept at pumping out gadgets the world snapped up, the electronics titans have locked up the market for only one of all the many gizmos, from laptops to LCD TVs, that have swept the globe since 1990: digital cameras, a market they were predestined to dominate anyway because of their near-extinguishment of competition in film. The drugmakers’ pipelines are by and large bone dry. The banks and insurers are hardly renowned for their ingenuity, although they still burned their fingers meddling with the ingenuity of others in the conflagration of the financial crisis. The trading houses and power generators, the railways and retailers, the leasers and steelmakers all mind their own business and stick to their knitting. Which leaves us with the auto leviathans and their suppliers as just about the last redoubts of resourcefulness, although with rivals catching up with their only real killer app, reliability, profound motive power change coming, and their vehicles chronically uninspiring, the car in front may not be a Toyota much longer.

Here for one last time is Schumpeter, this time on a state of satiety in which the “methods of production have reached a state of perfection which does not admit of further improvement” (and how could a Lexus plant be improved?)

A more or less stationary state would ensue. Capitalism, being essentially an evolutionary process, would become atrophic. There would be nothing left for entrepreneurs to do. They would find themselves in much the same situation as generals would in a society perfectly sure of permanent peace. Profits and along with profits the rate of interest would converge toward zero. … The management of industry and trade would become a matter of current administration, and the personnel would unavoidably acquire the characteristics of a bureaucracy.

Japan in 2010 is no state of satiety, although the after-dinner torpidity intermittently revealed in the complacent statements of the elites sometimes make one think it thinks it is, but it has come to resemble in its upper echelons at least the stationary state of Schumpeter’s description, one in which not satiety but the state has deemed the entrepreneur and even the entrepreneurial function obsolete, save at the margins.

***************

My focus has been on microeconomic change, because the arcades of a thousand bankruptcies stirred microeconomic thoughts, but I’m conscious too of change—and lack of it—in other realms as well. Here, then, is a cut-out-and-keep laundry list of markers on the highway to real change in every sphere, markers that this mostly mild-mannered liberal (in the UK sense), would like to see overtaken. I’ve deliberately set the thresholds unambitiously low. Tick them off as they occur!

1) One of the top 200 Japanese firms is taken over lock, stock, and barrel by a foreign one when not in financial distress

2) More than 10% of new cars sold are made by foreign automakers (the ratio is around 5% currently)

3) A government comes up with a credible plan to eliminate the fiscal deficit and stop the debt mountain piling up

4) The Bank of Japan acknowledges that deflation is “always and everywhere a monetary phenomenon”, that “sufficient injections of money will ultimately always reverse a deflation”, and takes action accordingly

5) The banking and life insurance operations of Japan Post are surgically removed and closed down, while its post office operations remain nationalized

6) Japan rises into the top half of the table in the World Economic Forum’s Global Gender Gap Report (it ranked 98th out of 130 states in the 2008 report, sandwiched between Mexico and Brunei)

7) The Imperial Household Law of 1947 is amended to allow succession by legitimate female descendents of the imperial family and ends patrilineal primogeniture

8) The Civil Code is amended to allow women the official use of their maiden names after marriage

9) More than 5% of Japanese babies are born out of wedlock (the ratio is below 2% currently)

10) More than 5% of senior executives are female (the ratio was 1.2% in 2009)

11) A truly pronatal government succeeds through a variety of steps in raising the birthrate above 1.5 (it was 1.37 in 2009)

12) More than 5% of men eligible for childcare leave take it (the ratio was 1.2% in 2008)

13) The percentage of single parents living in poverty falls to the OECD average of around 20% (the ratio is currently around 50%)

14) Legislation is passed to establish an institutional framework for same-sex marriages or civil partnerships

15) High school students are allowed to specialize to a degree in subjects in which they are interested

16) University entrance examinations routinely require applicants to write essays in liberal arts subjects rather than answer multiple-choice questions

17) Universities offer tenure to foreign academics as a matter of course

18) Nurse and long-term caregiver wages are raised to a level sufficient to tempt back discouraged workers or the accreditation of nurses and caregivers from Indonesia and the Philippines is accepted and they are permitted to freely work in Japan after a year of intensive language immersion

19) The foreign-born population of Japan rises to 5% of the total population (it is currently around 2%)

20) The video-taping of suspects in police station interviews is made mandatory

21) The criminal justice system conviction rate falls below 95% (it is currently about 99%)

22) The death penalty is abolished or falls into desuetude

23) Two main ideology-driven political parties, one leftish and one rightish, emerge and alternate in government, either in coalition with smaller parties or ruling alone

24) Measures are taken to revitalize the moribund regions through a general devolution of power and the provision of incentives to companies to set up operations in severely depopulated areas

25) Subsidies for the Institute of Cetacean Research are ended

Some of these are tantalizingly close, some may happen in the not too distant future on an extrapolation of present trends, and some seem nigh on impossible. Many would cost next to nothing, some would save money, and many could be achieved with a stroke of the pen. It would be best though, if you’re planning on collecting all 25, to have an extra lifetime or two lying around.