The Power to Compete | Hiroshi Mikitani

Summary of: The Power to Compete: An Economist and an Entrepreneur on Revitalizing Japan in the Global Economy
By: Hiroshi Mikitani


Embark on an insightful journey into the heart of Japan’s economic struggles, as experienced economist Hiroshi Mikitani discusses the complex challenges the nation faces in ‘The Power to Compete’. Through this summary, you will explore Japan’s ongoing battle with innovation stagnation, a cumbersome bureaucracy, and the rise of state capitalism. Mikitani’s analysis will illuminate how Japan’s unique cultural context has influenced its economic woes and highlight the critical changes required to ensure the country regains its footing in the global economy. Get ready to delve into the intricacies of Japanese capitalism, labor markets, and industrial policies while discovering key insights about fostering innovation and embracing globalization.

Japan’s Struggle with Innovation

Japan’s economy is directionless and protectionist. The country’s leaders have been hesitant to embrace change and innovative ideas, resulting in a sclerotic bureaucracy that has limited progress. The Shinzō Abe administration sought to reform Japan’s economy, but its efforts have been diluted by state capitalism and public debt. Japan needs more flexible labor markets, and its stagnant leadership must push for bold strategies to move the country forward.

The Innovation Crisis in Japan

Japan’s economic leaders mistake invention for innovation, hindering economic growth. Economist Joseph Schumpeter’s theory highlights that innovation drives economic expansion. In recent decades, Japan has seen little innovation due to its risk-averse system of funding start-ups. Unlike the US, where venture capitalists and private lenders provide financing, in Japan, business loans come primarily from banks, which are too cautious to fund start-ups. To stimulate economic growth, Japan needs to embrace a culture of innovative thinking, encourage investment in start-ups, and create more opportunities for entrepreneurs.

Japan’s Innovation Challenge

Japan must adapt to global norms to compete in innovation. However, its technology, such as its television format, does not fit international standards. This has resulted in the decline of Japanese companies like Panasonic and Sony while Samsung overtakes the global TV market. Japan can learn from Samsung’s approach of sending employees abroad to study new markets and top US schools for advanced degrees. Hiroshi Mikitani, author of the book, explains how his company, Rakuten, grew by hiring engineers from Europe. But, this strategy is unusual in Japan’s insular society.

The Decline of Japanese Brands

Japan’s reputation for distinctive products has declined, affecting the brand cachet that once created surplus profits. The loss of Japanese innovation has eroded this differentiation; once-mighty brands like Sony and Toyota have lost their groove and are struggling to compete with rivals like South Korea’s Hyundai. Sony’s failure to profit from new innovation has been compounded by the loss of founder Akio Morita, while Edy, its electronic payment service, only became profitable after being rescued by Rakuten. Japan must innovate and differentiate once again to regain its competitive edge in a rapidly changing global market.

Abenomics and Japanese Economy

Abe’s Abenomics reform package was introduced to revive the Japanese economy, but it has been subject to criticism. Abenomics is based on the Keynesian concept of fiscal stimulus, which suggests that government spending can have a multiplier effect on the economy and support consumption. However, due to fiscal leakage, the actual economic impact of Abenomics has been much lower than the initial spending. Moreover, the Japanese power structure discourages dissenting views on Abenomics. Stimulus spending has yielded disappointing results in a rich country like Japan, as people tend to save rather than spend in difficult times. Effective stimulus should target specific areas that can benefit the economy, such as building roads in congested areas. The book questions the effectiveness of government-led industrial policy and encourages a more competitive private sector in Japan.

Rethinking Japan’s Economic Stimulus Plan

Japan’s traditional physical infrastructure-focused spending may not be enough to boost its economy. The country should also focus on “soft infrastructure,” such as communication and education. An IT autobahn, a national network of free communication systems, could be a powerful stimulus. Japan’s school system needs improvement, with smaller classes and less emphasis on memorization. By investing in soft infrastructure, Japan can generate a more potent multiplier effect and compete with its Western counterparts.

English Language and Economic Development

Most nations emphasize English as a tool for economic development, but relying solely on school-based training is not enough. Japan needs to adopt a more interactive education system to improve English proficiency and attract talented foreigners. Private tutoring, as exemplified by Hiroshi Mikitani, provides a more personalized learning experience.

English is widely regarded as the international language of business and is increasingly seen as an economic development tool. For instance, Turkey is investing billions of yen to teach English to its residents, while South Korea has made English instructional. However, relying solely on school-based training is not enough to take full advantage of English as a competitive advantage, as demonstrated by Japan’s struggle with English. Despite spending approximately 2,000 hours studying English during their primary education, Japanese students only post abysmal scores on standardized tests, which sometimes impedes their ability to work or invest in the country.

To improve English proficiency, Japan needs to adopt a more interactive education system that encourages more personalized learning. Private tutoring could provide the necessary solution, as exemplified by Hiroshi Mikitani, whose English grades and proficiency improved significantly after receiving individual instruction from a tutor. This approach allows for a tailored approach to understand each student’s particular strengths and weaknesses that schools cannot provide, especially in Japan’s tradition-bound schools. Overall, to attract talented foreigners and compete in the global marketplace, Japan must embrace a more interactive education system in its path towards English proficiency.

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