Enabling Global and Local Standards to Coexist

How can smaller companies and local communities survive the age of globalization so they are able to continue providing employment and essential services? One solution is to build a dual-structure economy that would allow global and local standards to coexist. In judo, global standards were introduced so that it could be understood by all people, but its cultural roots have faded. Sumo, by contrast, has struck to its conventions, yet it is, in many ways, even more international. We should reconsider our commitment to across-the-board liberalization and work instead to preserve those values that cannot be expressed in numerical terms.

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The word ‘‘crisis’’ seems to confront us everywhere we turn. In Japan, however, this is nothing new. In fact, we seem to have been living through a crisis of one kind or another for most of the past decade.

If what we are facing is truly a crisis, we need to look calmly at the true nature of the issues and think seriously about how we are going to address them. I believe that our first priority should be to understand the common nature of the problems facing us in a number of different spheres.

We are currently going through the largest turnaround since the Industrial Revolution. This is a phase that began several decades ago, and it is likely to continue for several more decades.

During this phase, the speed with which the exchange of people, goods, money and information is taking place has accelerated. While this has engendered great benefits, it has also resulted in a loss of diversity.

It has also produced a perception gap among the countries of the world. The industrially advanced countries, including Europe, the United States, and Japan, increasingly see limits to growth, but emerging economies like China, India and Brazil are intent on seeking rapid economic development.

This has spawned disagreements over environmental and other issues. Competition for growth, moreover, has complicated efforts to deal with emerging challenges, such as the global financial crisis and the fiscal crisis in the European Union.

These developments show that stopgap measures are not enough. The world needs more fundamental solutions to the challenges it faces.

Problems in Japan

In retrospect, Japan was exceptionally fortunate over the half century since the end of World War II. We enjoyed unbroken economic growth, and any domestic problems that emerged could be rectified by enlarging the size of the economic pie.

Japanese politics remained stable, at least on the surface, under the reign of the conservative Liberal Democratic Party, in stark contrast to the situation in Europe and the United States, where government changed hands rather frequently.

The collapse of the bubble economy in the early 1990s, though, put an end to the days of ever-soaring economic growth in Japan. During most of the two decades since then, successive LDP administrations merely adopted quick-fix measures to deal with stunted growth.

The time finally came, though, when the bill had to be paid, both politically and economically. Social systems premised on continued growth sputtered as the economy entered an era of steady decline.

The LDP was knocked out of power by the Democratic Party of Japan in the autumn of 2009, although the DPJ’s lack of unity and experience has tied its hands in coping with pressing issues. Japanese voters are by no means hoping for a return to LDP rule, though.

As secretary general of the Government Revitalization Unit in the Cabinet Office, a waste-cutting task force introduced by the DPJ, I have been taking part in the screening of government programs. This process is not only a new attempt to eliminate waste but presents a good opportunity to thoroughly review the administrative process.

By having outsiders take the lead in these public screenings, people’s understanding and awareness of state finances have been enhanced conspicuously. In this era of sweeping change, encouraging greater public participation in the administrative process can serve as a useful model for other countries.

Dual-track globalization

Under Bretton Woods and other postwar economic systems, efforts were made to lower or eradicate the ‘‘barriers’’ to the movement of people, money, and goods. But it seems to me that the time has come to seriously consider the creation of international agreements and organizations oriented to regulating and decelerating such movements with stability and sustainability in mind.

In the ‘‘ultra-macro’’ domain of the global environment, this sort of discussion is already under way; henceforth, we will doubtless begin to hear it in various microeconomic forums as well. I believe that the current economic recession has placed us face to face with the challenge of fashioning new systems in a wide range of areas that will permit the coexistence of both the global and the local, the fast and the slow, the large and the small, as well as the universal and the individual.

I am proposing that barriers be built up again to slow the speed of economic growth as a whole. If such barriers are erected by individual countries, they are labeled protectionist, but what I am advocating is ‘‘legitimate protectionism.’’

Given the finite nature of natural resources on Earth, we need to recognize the limits to economic growth. Humankind is now fast approaching such a limit.

We also need to maintain diversity. Globalization may be unstoppable, but smaller companies in local communities that could be swept up in the wave of globalization are still important. They continue to sustain the country’s regional economy as providers of jobs and sources of local revenue.

My proposal is simple. Let us treat smaller corporations differently from larger ones and establish barriers so that smaller businesses and local communities are able to absorb people as employees or residents. We should build a dual-structure or two-tier economic system that would allow global and local standards to coexist.

Let me illustrate with a sports analogy. While judo is a traditional Japanese martial art, it is now also an official Olympic event with its own international association. In order to make judo an international sport, judging standards, the colors of judo wear and other rules were made easier to understand by all people, regardless of nationality. In the process of introducing global standards, the cultural roots of the sport have faded.

Sumo, on the other hand, has adamantly stuck to its conventions. Inevitably, it has not become an international sport that is understood by everyone, yet nearly all the ‘‘yokozuna’’ (grand champions) over the past 10 years have been foreigners. At the summer tournament in 2010, of the 42 wrestlers in the top ‘‘makuuchi’’ division, 16 were born outside of Japan, including in Europe, Latin America, and Asia.

Judo-style internationalization gives top priority to enhancing efficiency through standardization, particularly in macroeconomic terms. In the sumo-style model of development, free access is ensured for everyone from any country, as long as they strictly observe the inherent rules and local conventions and agree to preserve those values that cannot be expressed in numerical terms, such as earnings.

We need to reconsider our commitment to judo-style internationalization of across-the- board deregulation and liberalization and instead consider the judicious placement of barriers and selective regulations. This may benefit humanity by slowing things down to the point where we can stop ourselves before going over the precipice.

This structure would be acceptable not only to the developed countries but also the emerging economies, which are likely to face similar problems in the near future. I am thus convinced that moves would emerge in the not-so-distant future to set up an international consultative body to introduce global policy measures that go in the opposite direction from those taken over the years by many international organizations.

(This article is reprinted with permission from the January 26, 2010, World Economic Forum Special Edition of the Japan Times. Further reproduction, reprinting, or retransmission of this article is prohibited without the permission of the Japan Times.)

Hideki Kato

  • President, Tokyo Foundation (2006-2012)