The truth is, it belongs to neither. IBM-Japan is IBM and Honda-USA is Honda. They exist because they have the support of their customers and appreciation for their employees. They have connections with vendors and dealers, not with governments. Corporations survive as long as they serve their purpose and act as “social entities.” Therefore, the concept of national borders-treating American-born companies as carrying the stars and stripes and Japanese-born companies as belonging to
The fundamental reason for the obliteration of national borders is the power of information. Consumers today can tell which personal computer or laptop is best for them, whether made by Toshiba or Compaq. In the old days, international enterprise followed an exploitative system; in the case of
In this context, the Japanese government is one of the most backward. The government has brought up the Japanese per capita GNP from $500 after the war to the current $26,000, but it still wants to sit in the driver’s seat. The government should now let the people be in charge. In my book, Zero Based Organization, I analyze each of the Japanese ministries and propose a new constitution.
I discovered, for example, that the reason why
I also looked at the Japanese Ministry of Health and Welfare, which oversees the pharmaceutical and medical electronics industries and certifies drugs. Should patients have adverse reactions to a drug, however, the government denies any responsibility. There are many lawsuits against the ministry protesting the approval of problem drugs. My recommendation is that if the ministry does not want the responsibility, it should not interfere but simply approve any drug certified by American or European authorities. Also, if a medical doctor is certified by an accredited institution of a developed nation, he or she should be allowed to practice in
In order to fulfill the notion of a borderless economy, we have to change regulations and systems which are remnants of the nineteenth century nationalistic, mercantilist world.
WHAT IS AN IMPORT TODAY?
There are 2,000
The Japanese, like people elsewhere, buy products based on their comparative value and not their nationality. Per capita spending of the Japanese on
Corporations can migrate between countries because customers look for the best and cheapest products as long as supply is stable. And supply is stabilized when goods are produced within the market. That is why
NEED FOR STABLE CURRENCY
The nineteenth-century trade model looked at export and import in terms of how many tons of goods crossed national borders. Nowadays, not just goods but money is transported across borders as a result of corporate activities. IBM’s return on equity out of
During the Plaza meeting, Secretary of State James Baker and his advisers suggested that the dollar be weakened to gain competitiveness and correct the trade deficit. This kind of thinking is based on the antiquated models of David Ricardo and Adam Smith, which worked in the days when commodities were traded and price was elastic. Today, however, price elasticity is low. More fundamentally, to increase international competitiveness, we need to improve productivity and quality, not adjust currency. The manipulation of currency acts as a handicap, which lowers motivation. The
Furthermore, the devaluation of the dollar has made
The economies in
With the disappearance of national borders, everyone can participate in everyone else’s real estate market as well as stock market. Therefore, currency exchange rates should be set to equalize purchasing power of goods, assets and financial fundamentals (the expectation of return on certain investments), reflecting the differences in inflation rate and interest rate. This also requires political providence, because politicians can have a tremendous influence on the foreign exchange rate. Some $600 billion changes hands every day over the markets of
Today we can literally see the forming of an ILE; people and corporations routinely crisscross between national borders. The emergence of a gigantic ILE, which behaves in a totally new and complex way, renders existing macroeconomic theories obsolete and requires our rethinking and reshaping of models and standards. Lower interest rates traditionally stimulate the economy, but in the borderless world, if the
In Keynes’s day, there were national economies modified only by export/ import. Hence, if his theories do not accurately describe current economic conditions, it is the fault of contemporary scholars who are still applying the nation-state model to changed circumstances. Instead of realizing that a new and more global model is required, they simply try to adjust the Keynesian model by adding modifications and writing academic papers about them. What happens if money supply gets tight in a country in today’s world? It comes in from abroad in the form of, say, impact loans. In 1988, 90 percent of the new bonds of Japanese corporations were issued in
Interest-bearing instruments have lost much of their allure these days; speculative ones such as real estate and stocks, which do not bear interest, have become more compelling. The largest of these financial instruments is the foreign exchange market itself, which, as mentioned before, moves $600 billion daily. Without this kind of “pocket” in the form of the speculative market, the money created by the governments’ sloppy money supply policies, known as superliquidity, would flow into the real market, causing tremendous inflation. Politicians and bureaucrats say we have learned how to curb inflation, but this is not true. The money is simply routed into a much more speculative and risky market instead of the inventories in the real marketplace. Inflation is measured by misleading indicators, the Consumer Price Index and the Wholesale Price Index, neither of which is based on prices of speculative items.
In the old days, when speculative instruments were not available, the excess money bought up goods for the future. Excess liquidity created inflation. Now we have speculative instruments which absorb the excess money and prevent the symptoms of inflation, though we actually live in an enormously inflationary world (50 percent per annum in some speculative markets).
JUST SAY PARTNER
In a recent book, The Japan That Can Say No, by Sony Chairman Akio Morita and politician Shintaro Ishihara, the authors are mistaken. The book is based on the old mentality that it is
Americans think that all Japanese are out to punish
We have to establish that the real economy is the entire world and devise new guiding principles accordingly. Some parts of the economy are completely international while others are very provincial, so not everything crosses national borders and the borders are not perfectly permeable. Yet money moves easily across borders. We have to figure out appropriate theories and frameworks to deal with this complex ILE. We also have to work out a “Declaration of Interdependence” and devise a super-governmental structure to regulate this new economic environment, geared toward the year 2005, around which time we can expect the ILE to take full shape. Under the new structure, even the tax I pay in
Kenichi Ohmae, Ph.D., is the director in charge of McKinsey & Company’s offices in