Wednesday, January 20, 2010
If you think nothing ever changes in Japan, consider Naoto Kan and Kazuo Inamori.
Kan is the new finance minister and Inamori is Japan Airlines Corp.’s new chief executive officer. Both men have three notable things in common. One, neither is a natural choice for the task at hand. Two, both hold the outlook for Asia’s biggest economy in their hands. Three, the odds are stacked firmly against either succeeding.
Japan is turning to Kan and Inamori in a sign of change, and it’s a good one. So let’s consider what could be if things break their way.
Kan’s job has “impossible” written all over it: boost growth and avoid a downgrade to Japan’s Aa2 credit rating. Rating companies are registering their dismay that Japan has had six finance ministers in 18 months. Such “revolving-door” leadership “doesn’t engender confidence,” says Thomas Byrne, senior vice president of Moody’s Investors Service.
The good news is that Kan, 63, is breaking the mold of the typical keeper of Japan’s all-powerful Ministry of Finance. Staffers are abuzz that he hasn’t visited the place much since getting the job on Jan. 6. There’s a reason for that. Kan wants to yank control over an economy heading in the wrong direction from the shadowy bureaucrats who run it.
It’s not the kind of revolution that lends itself to television-news reports, but it’s a huge one. Out of the gate, Kan told staffers that “the minister is not a representative of the ministry. He is a representative of the people.”
It’s not just semantics. Kan has a track record as a political rebel. By limiting his time at MOF headquarters, Kan is signaling that he plans to keep the bureaucrats at arm’s length. This is a big deal in change-averse Japan and it has the political class chattering.
Inamori’s job would seem equally impossible. Beleaguered JAL soon may file for what would be the nation’s sixth-biggest bankruptcy. The former flagship carrier holds a key place in the Japanese psyche. A few decades ago, its high level of service represented Japan’s rise from the ashes of World War II. Now it’s a national punch line and a reminder that Japan’s zombie- company problem lives on.
As deflation returns and pessimism about the future grows, JAL’s prognosis weighs heavily on the nation’s 126 million people. Just as U.S. President Barack Obama helped General Motors Co. to support consumer sentiment, Yukio Hatoyama must ensure JAL is handled skillfully for a change. That can be seen in how Prime Minister Hatoyama’s Democratic Party of Japan is breaking with the tradition of bailing out JAL every few years.
Enter tycoon Inamori, one of Japan’s most celebrated entrepreneurs. In few countries could a 77-year-old wear that moniker. In seniority-obsessed Japan, he’s that and more. Inamori founded electronics company Kyocera Corp. and set up one of the three companies that merged in 2000 to become KDDI Corp., Japan’s second-biggest wireless operator.
Last week, Forbes magazine named Inamori Japan’s 28th- richest man. It’s not his money that intrigues people, though. It’s his role as a business philosopher and writer -- a kind of Japanese Jack Welch. In a Nov. 2 column, I postulated that JAL needed a Steve Jobs -- a creative multitasker with uncanny business acumen. Inamori isn’t the Apple Inc. CEO, but he may do.
It’s strangely fitting that Inamori also is an ordained Buddhist priest. He may need more than good karma to tame the unholy alliance of labor unions, bankers and politicians standing in his way. Then again, Inamori is thought to have something equally useful: the support of the prime minister.
The idea that JAL is an independent company is rubbish. Technically privatized in 1987, it has never been allowed to run itself for one reason: The Liberal Democratic Party, which ran Japan virtually uninterrupted for 54 years until last August, had an airport fetish. The LDP built white-elephant terminals and runways all over the nation to create construction jobs.
Then, it browbeat JAL’s compliant executives into utilizing them. It left JAL with a stable of unprofitable routes -- not unlike Amtrak in the U.S. A key task for Inamori is halting those flights, a radical step that will require political support at the highest levels.
I don’t feel terribly bad for all of JAL’s shareholders. For the retirees about to see their investments vanish, one has to have more sympathy. The many investors out there targeting JAL as a “moral hazard” strategy bet on bailouts for years. It’s about time the government ended the JAL gravy train.
That phenomenon is at the core of Japan’s two-decade-long economic funk. Japan Inc. picks corporate winners and then coddles them into complacency. And so, Hatoyama isn’t exaggerating when he says: “The revival of Japan Airlines is deeply connected to the revival of the Japanese economy.”
There’s wisdom in putting the economy and JAL into fresh and unpredictable hands. Yes, it may be business as usual and history might show little was achieved by Kan and Inamori. It’s also possible the reform that investors have waited for in Japan for decades is suddenly afoot.
Source: Business Week