[Outlook]Growth through human potential

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[Outlook]Growth through human potential

As the Japanese economy has revived, Japanese management styles have been re-evaluated. Until the 1980s, many countries envied Japan’s management style. But after its economic crisis, that evaluation was reversed. People felt that lifetime employment and Japan’s emphasis on seniority had prevented the country from adapting to globalization.
Instead, American management styles became popular. Putting shareholders first and increasing the efficient allocation of resources were widely regarded as goals the whole world should pursue.
The outcome was striking. Sony, which first introduced American techniques, fell sharply, while Toyota and Canon, which stuck to traditional Japanese styles, leapt forward. Last year, Hiroshi Okuda, the chairman of the Federation of Economic Organizations, said the driving force for the revival of Japan’s economy lay in the Japanese management style. Improvements in performance, he said, were the result of research, development and the training of employees, all hard to achieve with an American approach, which emphasizes short-term profits and reductions in manpower.
In fact, even though Japan went through a slump and restructuring, the average length of employment at some workplaces increased from 10.9 years in 1990 to 12.0 years in 2006.
What does this Japanese management style mean to us? Looking back, in the 1990s, both Japan and Korea were required to transform themselves. The drastic change in the business environment caused by globalization resulted in a “lost decade” in one country and a financial crisis in another. However, the two countries responded in very different ways.
In Korea, from 1996 to 2001, the period right before and after the financial crisis, the ratio of labor costs to value added dropped from 63 percent to 59 percent. These figures demonstrate that Korean companies had employees take the burden of restructuring while they prioritized profits.
During the same period, the ratio of labor costs in Japan rose from 73 to 75 percent. Even when the economy enjoyed its boom, the figure stood at 70 percent. This shows that, during its depression, Japan sacrificed company profits, while reducing the burden carried by employees.
At first, the Korean restructuring received good evaluations. People saw that decisive and rapid decision-making contributed to an improvement in profits. Japan also said that it should learn to make decisions swiftly, in the Korean fashion.
However, the argument that things are different over the longterm gained support. First, an emphasis was placed upon the idea that employees are the most valuable assets of Japanese companies. Executives maintained that it was better to fire themselves than to shed employees. There was a consensus that they should pursue long-term growth, not short-term profits. In fact, Japanese companies invested a considerable amount in research and development during the recession. The investment volume was large, even by global standards.
In Japan, the American management style is no longer regarded as the benchmark. According to a recent study, 70 percent of executives saw employees and shareholders as the owners of their company. This is why the Japanese management style has been assessed anew. The emphasis on employees and long-term investments are expected to bring sustainable growth for Japanese society. The logic is that the emphasis on the importance of employees will lead to an accumulation of good human resources, the development of new products and technologies and, hence, long-term growth.
Meanwhile, how are things in Korea? We still have a firm belief in the American global standard, even though there is no guarantee that American management styles suit our reality.
People half-jokingly complain about or ridicule those in their 40s and 50s, who are regarded as an alienated generation. The polarization of our society, between young and old, has surfaced as a major problem. This is just a small fraction of our problems. Unlike the United States, which is a resource-oriented economy, we have achieved growth through labor. We should and will continue to grow, solely depending on our human resources. In the United States, there are many ways to mitigate inequalities in income, but we have few such methods.
Our choice is stark. If we want to stick to American management styles, we must know how to use abundant human resources and ease wide gaps in incomes, while having shareholder interests as the main goal of management. Or we can find a Korean management style that best suits our reality. If our choice is wrong, it will become very hard to achieve sustainable growth.

*The writer is a professor of economics at Saitama University, Japan. Translation by the JoongAng Daily staff.

by Woo Jong-won
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