
Japan Must Let Zombie Companies Die - tmlee
http://bloombergview.com/articles/2016-01-20/japan-must-let-zombie-companies-die
======
lkrubner
The above article is best understood as a political piece, rather than a
business story.

Every single sentence in this article can be picked apart, but doing a line-
by-line critique would miss the larger problems with the article. The author
assumes that more productivity is always good, even though Japan has been
suffering a lack of economic demand for most of the last 26 years. Big gains
in productivity would only make the lack of demand worse.

If the goal of Japanese policy makers is to boost demand, and that does seem
like a wise goal, then keeping 50,000 workers employed at Sharp seems like a
smart bet, compared to keeping 100 people employed at some nimble, fast-moving
startup.

More so, Japanese electronics firms still hold great global market share, so
there is reason to think that their productivity is more than adequate to
compete in the global markets.

And this sentence can only be understood if your political beliefs align with
the political beliefs of that author:

"If Japan’s bailouts remind you of the U.S.'s rescue of its auto companies,
you’re not alone. There is a strong argument that the auto bailouts only
delayed the day when General Motors and Chrysler lose out to nimbler
competitors like Tesla Motors."

Right, but the USA bailout of the auto companies seems to have been a good
bet. Hundreds of thousands of jobs were saved, and the companies bounced back
and paid off their debts, and the USA was able to sell its stake in GM at a
profit. So it was win-win-win all the way: the taxpayers won, the workers won,
and the economy won.

~~~
orangecat
_If the goal of Japanese policy makers is to boost demand, and that does seem
like a wise goal, then keeping 50,000 workers employed at Sharp seems like a
smart bet, compared to keeping 100 people employed at some nimble, fast-moving
startup._

If you want to make sure people have money so that demand is increased then
just give them money, don't keep useless jobs around.

 _the USA was able to sell its stake in GM at a profit_

No:
[http://www.usatoday.com/story/money/cars/2013/12/09/governme...](http://www.usatoday.com/story/money/cars/2013/12/09/government-
treasury-gm-general-motors-tarp-bailout-exit-sale/3925515/)

~~~
lmm
> If you want to make sure people have money so that demand is increased then
> just give them money, don't keep useless jobs around.

Ideally yes, but that's politically difficult.

~~~
TheOtherHobbes
In spite of fifty+ years of MBA thinking, jobs aren't really fungible.

When you fire a lot of people you're not just reducing costs - you're also
hoping that you will never again need the skills and the knowledge of your
internal processes that those people have.

Sometimes it's a good bet. Sometimes it isn't.

------
jzelinskie
>you decide to leave your job and start a business with your college buddies

I know the point they were trying to make in the article, but the primary
reason this doesn't happen in Japan is the cultural fear of failure rather
than the system being broken. Once you're in, the nanny corporation will take
care of you for the rest of your life. Once those corporations are in, the
government will take care of them for the rest of their life. Risk mitigation
is what's most highly valued; because of this fact, not all capitalistic logic
can be applied, despite the system appearing fairly capitalist.

~~~
gozur88
>Once you're in, the nanny corporation will take care of you for the rest of
your life.

The flip side of that is if you quit you will never be offered another
_salaryman_ job. By anyone. I wouldn't start a business in Japan unless I was
already unemployed.

~~~
eropple
Is this really true? (I have no idea, it just sounds so implausible that I
feel like I have to ask.) Is there any good reading on this topic?

~~~
imtringued
According to another HN user the unemployment rate is only 3% so it doesn't
appear to be that bad. Those 3% may not include discouraged workers though.

~~~
muzani
I'd raise my eyebrows at that 3% stat. Spend a week in Japan and you'll see
that it isn't a 50-50 ratio of women: men commuting to work. Are all those
housewives classified as employed?

~~~
ordinary
People who don't have a job and aren't interested in getting one, like
housewives, are not included in unemployment numbers. What is measured is how
much of the labour force is currently unemployed. If you're not in the labour
force, you're neither employed nor unemployed. You're just not covered by
those particular statistics, just like children and pensioners.

If you're interested in how large a fraction of the working age population is
employed, see employment rate.

------
tim333
A couple of flaws in the article:

>That will keep the market flooded with artificially cheap Sharp products --
mobile phones, solar panels, air conditioners, printers, microwave ovens

Sharp doesn't dominate any of those markets. If it went bust people would buy
them as cheap pretty much from other Asian manufacturers.

>The bank bailout does nothing to improve Sharp’s corporate strategy

Sharp seems about to be bought by Foxconn which is quite a change of strategy.
It wouldn't have happened if the government had let it go bust years ago.

The main effect of letting Sharp go bust would be to throw 50000 people on the
labour market who in efficient market fantasy land might all be snapped up by
more efficient employers but who in reality would probably have been mostly
unemployed.

~~~
unscaled
>That will keep the market flooded with artificially cheap Sharp products --
mobile phones, solar panels, air conditioners, printers, microwave ovens

Besides, as a domestic consumer, sharp products are not necessarily cheaper
than competitor's offers. Nor do they seem less innovative. This is all from a
consumer perspective, but while the bailouts are real, the "stop innovating
and flood the market with cheap products" strategy the author describes just
isn't there. Sharp is keeping the same Kaizen-style innovation, slightly
improving their models every year. It's debatable whether these small
improvement warrant buying a new model, but the same could be said for all of
their competitors as well.

------
patio11
_Meanwhile, you manage to secure venture-capital funding and even a bank loan.
The interest rate is high, but with your rapid growth, you should be able to
pay it back._

Meanwhile, in the Japan some of us actually live in:

1) Very few 26 year olds will be successfully able to convince their 26 year
old co-workers to leave Sharp, because that is a once-in-a-lifetime mistake. I
am literally related to a $ANONYMOUS_FOR_SAKE_OF_RELATIVE employee who is
presently miserable and cannot leave because that means an end of economic
stability for his family _forever_ and his family makes no secret of how
unhappy they would be in that situation.

2) If you are a 26 year old startup founder and you ask for a bank loan
^H^H^H^H _business checking account_ , be prepared to get told "Oh hell no.",
but very politely. The first variant of "Oh hell no" is "Hmm, well
theoretically speaking we do have business checking accounts available as a
product. Can we see your articles of incorporation, business plans, office
rental contract, orders from customers, etc etc?" Upon which you say "Well
we're making LCDs so we don't have orders yet because we need a bank account
to e.g. purchase machinery" at which point "We regret to inform you that we
cannot accept your business."

Not a theoretical concern: I'm presently 2 weeks into the fun with a large
Japanese bank trying to get an account issued, which _shakes fist at a
personal bugbear_ is not exactly the easiest thing to accomplish for a Western
tech entrepreneur in Tokyo at the moment. (I've been asked about Bitcoin three
times already.) If I manage to get the account, it will because I rounded up
123 pages of documentation (not an exaggeration, that's a count) from previous
work to convince the bank that I was not a ML nor fraud nor credit risk.

3) Venture capital: you will not successfully receive sufficient-to-create-a-
physical-product venture capital as a 26 year old in Japan. It's difficult to
raise what would be "trivial by Valley standards" just to build software
products: prepare for 6 months of All The Fundraising Fun You Can Imagine to
get an A round sized like a modest seed round in St. Louis. You need
substantial industry connections here to convince a corporate VC to give you
the corporation's money. The high-percentage way to "compete" with Sharp is to
spend 30 years in it, get recognized internally as a very competent performer
who is not management track, "quit" to "run a startup" which makes a product
that Sharp definitely needs but would have difficulty making without you,
receive money from Sharp's affiliated VC vehicles, and "exit" by taking the
buyout order from your single customer, which will naturally be Sharp.

("What would incentivize Sharp to do that?" Because all salarymen at Sharp of
a given age are equal but some are more equal than others. M&A is allowed to
make decisions regarding compensation that HR is not. This incentivizes folks
who are internally indispensable but not managers who show up in the
Nikkei/WSJ by name to do a bit of revolving-door. Think like Google but amped
to 11.)

~~~
w1ntermute
Given the overwhelmingly unfavorable business climate, why wouldn't this
theoretical enterprising 26 year old just leave for SV? Immigrants have played
a big role in the Valley for decades, but there haven't been many from Japan.
Perhaps that drive is just destroyed/suppressed by the culture.

~~~
jonny_eh
One cannot easily immigrate to the US to work, especially without a sponsoring
company.

------
primrosepath
> The U.S. auto bailouts were undertaken in the middle of a deep recession,
> and are highly unlikely to be repeated.

Except Chrysler was bailed out before and has now been merged/bought by a
foreign auto company for the second time in 20 years.

~~~
gozur88
I had to laugh at that, too. US auto companies will be bailed out or forced
into mergers exactly as often as they fail. The government can't afford to
assume pension obligations for all those retirees.

------
mc32
Abe and Koizumi to a lesser degree keep wanting to change business in Japan,
but it just does not happen. Economists have been "telling" Japan to let
Zombie companies die for over 25 years and little has changed. Brokers
intermediaries too, they have not been made redundant through efficiencies.

On the one hand it's interesting to see a society buck the trend towards
working out inefficiencies, on the other hand, they are not a closed market so
they can't just keep on going like this and hope things get better.

------
mempko
> If Japan wants to generate long-term growth...

Does Japan want this?

~~~
bedhead
Their population is declining, so no, I guess.

~~~
cJ0th
Your comment may is tongue in cheek but I'd say that if that is indeed what
they want then that's fair enough, isn't?

------
Animats
Bailing out GM and Chrysler seems to have been a win. Bailing out Goldman
Sachs, not so much. The US had a lot of zombie investment banks in 2008, and
only a few were allowed to fail.

~~~
adventured
The critical difference is, all the zombies were actually dealt with in the
US. Goldman Sachs is back to being fully functional and very profitable, it's
entirely capable of standing alone today.

There are no big banking zombies wandering around the US landscape now. Most
were consumed, forced into mergers. Their balance sheets were cleaned up, via
the Fed (Citi and Bank of America for example).

~~~
jsprogrammer
Kind of amazing how some billions and trillions will just stand you right up
on your feet in a few years.

Maybe the Fed is now the zombie?

------
EGreg
So because of a fictitious story, a company employing 50,000 should die so a
startup employing 100 people can grow into the next big company.

If your concern is about Japan's welfare, how about instead selling your
startup to the large company?

------
freewizard
Well, wonder how much it costs Japan to do this, and might be fun to compare
with what China has put into its stock market.

------
free2rhyme214
I was in Tokyo in 2013 and 2014. I remember seeing lots of salarymen all
dressed the same, also government workers all dressed the same with their
little badges on their sleeves and I couldn't help thinking about the lack of
individuality in their culture.

It doesn't surprise me that Japan is mimicking the U.S. by bailing out failing
local companies.

The real issue with Japan is their lack of entrepreneurship. They used to be
fierce competitors but are now more of an afterthought.

