In his second op-ed, Pesek then goes into another "transaction cost" that bedevils would-be operators in Tokyo: a reluctance by many Japanese to adopt business English. Or, in a memorable phrase, surmount the "Economics of Engrish" (there is no direct equivalent of the English letter "L" in Japanese):
Watching Hong Kong and
Singaporesoak up the global spotlight isn't going down well in . As home to Tokyo Asia's biggest markets, its highest standard of living and world-class infrastructure, the Japanese capital is the region's natural financial hub. Tell that to international investors increasingly favoring centers elsewhere in Asia.
Takatoshi Ito wants to change that. Fresh from being vetoed as a candidate for deputy governor of the Bank of Japan, the
Universityof Tokyoprofessor is redoubling efforts to make Japaninto another . `` London Tokyoshould take lessons from ,'' Ito said in an April 17 speech at the Foreign Correspondents' Club of Japan. Doing so, he said, ``is very important to the future of London .'' Japan
Ito calls the U.K. a ``role model for the rest of the world'' for its success in opening and regulating financial markets, importing talent, granting work visas and adopting a favorable tax regime. The government adviser is uniquely positioned to help persuade Prime Minister Yasuo Fukuda to apply those principles to the second-biggest economy.
The bad news is that the odds are stacked against Ito's dream of making
Tokyothe of the East. For one thing, London may be coming to this effort too late. The ``Big Bang'' of the 1990s didn't have the intended effect of deregulating Japan 's rigid financial sector. Japan 's equity bourses fell behind technologically and failed to become as international as pledged. Tokyo
Along with spooking investors, the banking crises of the late 1990s and early 2000s prompted policy makers to turn inward. That allowed Hong Kong and
to make inroads at becoming centers for equity trading and foreign-exchange dealing. Hedge funds and private-equity outfits, in turn, put their headquarters there. Singapore
In January, Hiroko Ota, minister of economic and fiscal policy, summed things up in unusually blunt terms: ``Unfortunately,
is no longer in a situation in which the nation is a first-class economy.'' For another thing, the political establishment isn't focused on Japan 's financial future. It cost Fukuda considerable political capital just to get a new BOJ governor confirmed, never mind shaking up a business culture that may be too grounded in the past to compete in the future. Japan
In his five years as prime minister from 2001 to 2006, Junichiro Koizumi tried to set the stage for the kind of changes Margaret Thatcher brought to the
U.K.and Ronald Reagan brought to the in the 1980s. Since Koizumi, U.S. has had two premiers -- neither very focused on economic matters. Japan
The financial pages are filled with reports of cross- shareholding between friendly companies making a big comeback. Takeover defenses and poison pills to avert mergers are back in vogue. Corporate governance remains a concern for many investors.
When it comes to competing with Hong Kong,
London, New Yorkand , Ito, 57, is a key person. He sits on the Council on Economic and Fiscal Policy, the government's brainstorming body that pushed for structural changes during the Koizumi years. Ito didn't get the BOJ job because he favors inflation targeting, something many politicians find too radical. Yet isn't trying something new what Singapore needs? The bright side is that Ito can focus on deregulating Japan JapanInc. Private-sector voices like Ito's are badly needed in . Tokyo
's to-do list includes greater openness to foreign investment, better tax treatment for overseas companies, freer trade, more flexible labor markets and immigration policies, reducing the world's largest public debt, boosting female participation in the workforce and encouraging shareholder activism. Accomplishing any of these goals is difficult in the best of times. The political vacuum in Japan makes success even less likely. Slowing global growth isn't helping things. Neither is turmoil in credit markets. Tokyo
I asked Ito last week whether
's becoming-a-global- financial-center effort is too little, too late. ``This is our last chance, but it's not too late,'' he said. ``We have to do this in the next five or 10 years, or it really will be too late.'' Japan
While its demographic profile is gloomy -- 21 percent of Japanese are past age 65 -- the nation is home to an unusually wealthy population. Japanese are sitting on household savings that exceed the annual output of the $13.2 trillion
economy. Pension funds have assets roughly equivalent to U.S. 's $1.6 trillion of currency reserves. And then there's China 's $988 billion of reserves. ``Mobilizing that capital would be good for Japan 's economy and markets,'' Ito said. Japan
The bigger issue, though, is getting more foreigners interested in investing in
Japanand trading in . Oversees investors were discouraged to see Children's Investment Fund Management Ltd., the U.K. activist fund, recently fail in efforts to double its 9.9 percent stake in Electric Power Development Co., or J-Power. The government invoked national security; many saw it as a reminder of Tokyo 's reluctance to welcome foreign investment. Japan
Tokyohas the raw materials to emulate London's success in Asia. If it doesn't work much harder and much faster, though, the odds will mount further against it.
wants to be a global financial center. It's busily upgrading infrastructure and considering a similar zoning approach as Tokyo London's to attract hedge funds, banks and other institutions. While that's all well and good, a key ingredient is missing: English. Canary Wharf
Call it the ``Economics of Engrish,'' as did C.H. Kwan, senior fellow at
's Research Institute of Economy, Trade and Industry, in a May 2002 article. The idea was that Japan needs to improve its English proficiency to stay at the forefront of business in an increasingly globalized world. Japan
Fast forward six years and
is still tripping over what many observers call its ``English-language deficit.'' Considering its economic success and the frequency with which Japanese travel abroad, the country's English-fluency rate is surprisingly low. Japan
I feel a bit uncomfortable tackling this issue. Arguing Japanese need to learn English might strike some as an attempt to advance
's cultural hegemony. My own challenge learning Japanese after six years in America also makes me skittish about judging others' language abilities. We Americans aren't known for our passion for learning other tongues. Tokyo
Yet English, for better or worse, has become the lingua franca of finance, business, science and the Internet. The longer any nation resists the need to improve its English skills, the more it limits its potential.
This argument would be valid if the global business language were French, German, Mandarin -- or Japanese. Even world leaders known for acrimony toward the West, such as former Malaysian Prime Minister Mahathir Mohamad, grudgingly acknowledge as much.
``A genuine global financial center needs to bring together players of every nationality, and from a variety of disciplines: accountants, lawyers, IT specialists, traders, due-diligence guys, etcetera,'' says Louis Turner, London-based chief executive of the Asia-Pacific Technology Network. ``There has to be one working language to bring all these people together and, like it or not, that language has to be English.''
Asia, Turner says, Mandarin may eventually establish itself as a working second language for business and science. For now, though, the focus is on English.
Native-Japanese speakers taking the paper-based Test of English as a Foreign Language, or TOEFL, scored lower than students from China, India, Indonesia, Malaysia, Myanmar, Nepal, South Korea and Vietnam in 2007. Even North Koreans scored higher.
is moving in the right direction. The education ministry introduced measures in recent years to improve its language program and encouraged public-school teachers to undergo fresh training. Students will begin learning English in the fifth grade starting in 2011, instead of the seventh grade. Japan
Bolder action is needed, and there's not a moment to waste. In late 2006, Bunmei Ibuki, then minister of education, shifted the focus back to teaching traditional values and patriotism to young Japanese. It was an untimely distraction in tackling what's arguably a curriculum problem. The emphasis has long been on passing written English exams, not verbal communication.
The English issue is becoming a serious liability. It was moot in the 1980s, when foreigners lined up to do business with a
very much on the ascendancy. Today, Japanese companies compete more with international executives, often boasting better communication skills, than with domestic rivals. Japan
``It's striking how irrelevant Japan is, not only in many international and Western forums, but also in much of Asia in policy and academic circles,'' says Jean-Pierre Lehmann, a professor of international political economy at IMD, a business school in Lausanne, Switzerland. ``The inability to speak English is not the only cause, but it's an important one.''
All this can lead to heavy costs for corporations. Teaching English to employees is an expensive, productivity-killing process. It also can lead to faulty decisions. Hiring someone primarily for their language skills may mean missing out on a far more skilled candidate.
The language debate has met with some resistance in
. It's at the core of concerns about globalization watering down culture and tradition. Japanese is an incredibly complex language with thousands of characters, layers of honorifics to master and a proud literary history. Many worry a greater emphasis on English will devalue Japanese skills in future generations. Japan
A happy medium must be struck here. Embracing English need not come at the expense of tradition or culture. The stark reality is that the rise of
Chinaand is making this debate moot. It's leaving India with a choice: either improve English proficiency or get left behind by fast-growing economic upstarts. Japan
English isn't everything; it's not a magic wand that will suddenly rid
of its long-term problems. Observers such as Philippa Malmgren, president of Canonbury Group in Japan London, are more focused on Japan's tax regime, which she says hurts 's attractiveness as a financial center. Japan
Yet English is an increasingly important ingredient to making
more competitive in the digital age. ``The language issue is a barrier,'' Malmgren says, ``but it can be overcome.'' Tokyo