April 10, 2012 12:48 pm

Memo from Tokyo: what Japan can teach us

tokyo skyline

Dear Prime Minister,

In 1977 Margaret Thatcher visited the Nissan car factory outside Tokyo. At the time, output per worker at Nissan was 400 per cent higher than at British Leyland, the largest UK carmaker. “It was so refreshing to see everyone working,” said Mrs Thatcher. “No one was standing around doing nothing.”


The rest is history. Nissan opened its car plant in Sunderland in 1986; today it employs more than 5,000 workers. UK factories make close to 1.5m vehicles a year, 80 per cent of which are exported. While Mrs Thatcher did more than any other politician to discredit the notion of active government intervention in the economy, her courtship of Nissan ranks as probably the single most important act of industrial strategy the UK has seen in the past 40 years.

As you reflect on your visit to the Nissan factory in Yokohama, you may recall this history. As you will remember, in the Thatcher era, Japan was believed by many to be on its way to becoming the world’s largest economy. Today it is often regarded as a stagnant, post-bubble economy, weighed down by public debt and an ageing society. But that is only a partial account, at best. In fact, Japan still has several policies from which the UK (and other countries) can learn a lot.

Over a fifth of the world’s patent applications in 2011 came from Japan, eight times as many as from the UK. It is far better at turning basic research into commercial applications, with clear national priorities set by government and strong links between businesses and universities. You should take a trip north to the Tsukuba Innovation Arena, with its state-of-the-art nanotechnology research centres.

There you’ll see what the UK’s new Catapult centres for university-business collaboration could look like, given the right resources and dedicated facilities.

Japan’s manufacturing companies are kept lean by a strong yen but they still thrive on dense networks linking them to suppliers, banks and government agencies. The influence of these practices can be seen in the UK car industry, which has co-ordinated skills training for its manufacturers and their supply chains and a new Automotive Council to analyse future trends. Britain needs these kinds of partnerships in more industries.


Similarly, just as Japan profited from public development and export banks in the postwar period, Britain would benefit from a national investment bank today, capitalising on historically low interest rates to fund investment in key sectors. You’ve made a start with the Green Investment Bank but could be much bolder. (Indeed, if so minded, you would draw the lesson from Japan’s lost decade that cutting a fiscal stimulus too soon after the bursting of an asset bubble can tip the economy back into recession and increase the risk of deflation.)

No one visiting Japan can fail to appreciate its world-class infrastructure, of which Shinkansen bullet trains are emblematic. In contrast, our creaking transport networks and ageing housing stock bear witness to the UK’s history of cuts to capital spending during periods of fiscal retrenchment. But the Japanese don’t just build infrastructure, they manage it within integrated systems, such as the one that controls all the power, signals, trains and passenger support for east Japan’s high-speed rail. Visit its control centre and you’ll see why none of the 27 bullet trains running when the earthquake struck in 2011 was derailed and no one has ever been killed in a high-speed train accident in Japan.

One final thing: on the flight home, find a bit of time to leaf through Project Japan, a history of the avant-garde Metabolist architects. It may offend your conservative aesthetic sensibilities but it’ll help you understand why Japanese cities do well in the rankings of the world’s most livable cities. Like us, the Japanese are an urban people living on a crowded island.

Yet they have the ability to imagine the future and then to build it, often at breakneck pace. If we are to tackle our chronic housing shortage, we’ll need to be just as bold.

Japan faces big challenges of its own, above all to increase immigration and boost its birth rate. But twice in its recent history, after the 1868 Meiji Restoration and the second world war, it proved itself capable of profound national modernisation. The question for you is whether Britain can do the same.

The writer is director of the Institute for Public Policy Research

Copyright The Financial Times Limited 2012.

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