Lost Japan (18 page)

In January 1989, I quit working on the Kobe mart. Flying to Dallas, I helped Trammell to publish a book on his jade collection, and then briefly returned to my art business. In the meantime, the clash between Japanese and American management styles reached a crescendo. Sumitomo offered to buy out Trammell Crow's share of the mart, and after a few months of negotiations the two sides gracefully parted ways.

However, the bubble was still going strong. The Crow Group's financial division, Trammell Crow Ventures, was introducing development deals to Japanese investors, who were pouring vast sums of money into US real estate. The Crow Company at that point was the recipient of hundreds of millions of dollars of Japanese investments and loans, so it became necessary to set up a liaison office in Tokyo.

In the fall of 1989, I became Trammell Crow Ventures' representative in Tokyo. My friend Mrs Chida, who had worked for years as secretary to the Egyptian Ambassador, happened to be free at the time, and came to work as my office secretary. I entrusted the management of my art business to a friend, rented an apartment in Akasaka in downtown Tokyo and commuted to Kameoka on the weekends. And so began the most interesting period of my business career. Trammell Crow Ventures' clients were mostly large financial institutions, such as life insurance
companies and banks, but we also did deals with construction companies and developers. That autumn, the Tokyo stock market climbed above 37,000 yen, and money was cheap. There was euphoria in the air, and the Japanese were convinced that they were about to take over the world; words like ‘a billion dollars' and ‘ten billion dollars' rolled off people's tongues, and Japanese investment in US real estate appeared to be growing without limit.

However, in January 1990 the bubble began to burst. Japanese stocks nosedived, and by the summer of 1995 they were hovering at 18,000 yen. The American real estate business also entered one of its periodic recessions: Donald Trump and other major players were declared bankrupt one after another, and the industry went into meltdown. The fact that the Trammell Crow Company was about ten times larger than Trump only made its problems ten times larger; Trammell's trust in young people like myself clearly had some drawbacks to it. After some very painful years, the Crow Company is slowly climbing out of the slump, but the structure of the company has become more traditional. Trammell S. has left the company, and the legendary Trammell Crow no longer exerts much influence over its policy, which is guided by his son Harlan and the Crow Company president.

During my Tokyo years, I noticed a number of things. Japan's
Wall Street Journal
is the
Nihon Keizai Shimbun
, commonly called the
Nikkei
. At first I read the
Nikkei
religiously, but I gradually got the queasy feeling that the real state of things was not being reported. When the stock market first began to drop, the news was nowhere to be seen in the
Nikkei
. Somewhere on the bottom of page five, in tiny print, one might find a headline saying, ‘Stock Market a Bit Unwell'. However, on buying a copy of the popular tabloid the
Evening Fuji
, front-page headlines ten centimeters tall would be screaming ‘CRASH!'. The English-language papers, while not so sensational, were also far more accurate than the
Nikkei
. This was my introduction to Japan's controlled press. In
every field, whether it is business or crime, Japan's reporters belong to ‘press clubs', where they depend on news handouts from government bureaucrats or the Police Agency. As a result of these cozy relationships, newspapers like the
Nikkei
verge on being a kind of government propaganda organ. Tabloids like the
Evening Fuji
, however, are cut off from this system, and are therefore rarely privy to any important inside information. They are unreliable for any but the broadest sort of economic data – like the daily stock market average, made public to all. At the same time, they are free to criticize business and government in a way the large established dailies rarely do.

While the
Nikkei
was still reporting the stock decline with words like ‘market a bit under the weather', Mrs Chida brought my attention to a humorous article in the
Evening Fuji
. It was about a banker who had disappeared because of stock market debts, and the headline was ‘
Yappari deta!
', or ‘Now It's Out!'. At that moment I heard the warning bells ringing. I had accumulated a large debt from the thatching of Chiiori and from buying artworks, but from that day I began to pay it back. One of Trammell's sayings was ‘Debt is the road to fortune', and this was very much the spirit of the 1980s bubble era. If I had read only the
Nikkei
, I might have let my loans stand, and would later have been wiped out. But thanks to the
Evening Fuji
, I paid everything off before the bubble completely collapsed.

The bursting of the bubble was an opportunity to observe the different responses of America and Japan. In the 1970s there was a real estate slump in the US. At that time, the Trammell Crow Company was in even more trouble than it is now, coming perilously close to bankruptcy. However, Trammell rode it out, and made it into the period of rapid growth in the 1980s. It is now conventional wisdom in the US that real estate goes through cycles. Trammell's son-in-law, Henry Billingsley, used to explain the cycle like this: ‘Here, at the bottom is farmland; that's where Trammell Crow buys in. Here, a building gets developed; that's
where US real estate investors buy in. Here, at the top, too many buildings have been developed, and as a result of oversupply, values are going to drop.' And pointing to a spot about twice the height of the top of the curve, Henry would say, ‘This is where the Japanese buy in.'

The reason the Japanese bought in such a way was that there had never been anything which could be called a cycle in Japan. After shaking off a brief ‘oil shock' in the 1970s, the vocabulary of Japan's stock and real estate industries was limited to ‘onward' and ‘upward'. The universal attitude was just what the people at Sumitomo Trust told Starnes: ‘This is Japan. Land and stock prices only go up.' There were people predicting that the stock market would rise to 60,000 yen, or even 80,000 yen, even though price-to-earnings ratios at those levels would be so small as to be almost zero. So the shock when land and stock prices dropped was severe: when it came time for the
Nikkei
to print the announcement of the stock decline, the
kanji
for words like ‘drop', ‘fall' and ‘crash' were not to be found in the typesetter's box.

Not everything I learned in the Tokyo office had to do with economics. The only employees were Mrs Chida and myself, and the floor space was barely seventeen
tsubo
. Even so, visitors would often comment, ‘How spacious. It has that nice foreign look.' Mrs Chida and I racked our brains to figure out what it was that gave us that ‘foreign look', and we could only think of one possible reason: the lack of clutter. For some reason, Japanese businesses cannot get the hang of managing office space. Even when the building and office are brand new, heaps of documents cover the desks and boxes jam the corridors. Our office looked different because we kept only what we were using on view; everything else was filed in the appropriate spot.

A pure tatami room, empty but for a single flower in a vase, is an almost archetypal image of Japan. Such spaces do exist, but only in tearooms, temples or formal meeting rooms – locations where people do not live or work. Anyone who has spent time in
a Japanese home or office knows that they are usually flooded with objects. From the old farmhouses of Iya to the apartments of modern Tokyo, living in a pile of unorganized things is a typical pattern of Japanese life. In my view, this is what led to the creation of the teahouse. In the Muromachi period, tea masters grew weary of a life crowded with junk, and created the tearoom: one pure space with absolutely nothing in it. It was where they escaped from the clutter. The culture of the Japanese is bracketed by the two extremes of ‘clutter' and ‘emptiness'. But when it comes to the middle ground of ‘organized space', that is, space with objects organized for daily use, their tradition fails them.

Well organized though our office was, its days were brief. By the early 1990s, Japan's real estate investment in the US came to an abrupt halt. Trammell Crow Ventures' Tokyo office became unnecessary, so at the end of 1991 I moved back to Kameoka, and ran everything by fax and phone from my office there. By 1993, even that operation ended, and so the curtain fell on my ten years of working for Trammell Crow. Meanwhile, the art business began to look interesting again, as artworks made unaffordable during the bubble days dropped in price.

In retrospect, my business career with Trammell Crow exactly spanned the bubble era. During that period I had plenty of chances to ‘learn about reality' whether I liked it or not. I gained a perspective on Japan's present difficulties that tea and Kabuki could never have given me.

The fall of the Japanese stock market was the biggest loss of wealth in the history of the world, yet the stock markets in New York, London and Hong Kong were completely unaffected, and have continued to rise regardless. Such is Japan's influence today. In the 1980s, everyone thought that Japan would become the center of the world; but in the 1990s, with the economies of China and ASEAN booming, Japan is being bypassed in many important fields.

The root of this decline lies in the telltale word ‘cozy'. Cozy
non-public bidding of the sort which awarded Rokko Island to Sumitomo Trust, cozy press clubs and other such systems are endemic in Japan. For decades they served to keep order at home and build up a competitive edge abroad. But meanwhile, rigidity set in: rocked in the cradle of its closed domestic systems, Japan failed to learn. Bankers did not master basic mathematics, such as IRR, and as a result, while Japan's banks make up eight of the world's ten largest institutions, in 1995 they ranked between eight hundredth and nine hundredth in profitability. Stockbrokers did not acquire tools of analysis vital in the business today. The Construction Ministry did not learn about ways of protecting the ecosystem while shoring up rivers – knowledge that has become standard in the developed world.

The only way to move forward is to dismantle these closed systems, but large businesses are too dependent on them, and so Japan is paralyzed. This paralysis affects culture as well as business, and how Japan breaks out of it will be the single biggest issue as the country enters the twenty-first century. The stock market exemplifies this paralysis. Since 1991, the government has kept the stock market from dropping below around 16,000 yen in order to protect banks, whose capital depends on the value of their stock portfolios. But because the market has not been allowed to drop to realistic levels, there have been almost no new issues. In other words, Japan's stock market is no longer fulfilling the main function of a stock market: raising capital. It has been effectively shut down for four years.

Another area where Japan is being bypassed is in the fashion world. Ten years ago, the leading fashion designers of Tokyo (including Issey Miyake, Kansai Yamamoto, Rei Kawakubo, etc.) got together to create the Council of Fashion Designers (CFD). They thought Tokyo's CFD would supplant Paris as a world fashion center, but the rigid organization of the domestic fashion world undermined them. The CFD was not open to foreigners, nor to new faces in Japan, and certainly not to the up-and-coming
Asian designers. It was too comfortable and predictable, so international fashion editors lost interest. Rei Kawakubo dropped out; Kansai Yamamoto has not shown in Tokyo in several years. In 1995, the CFD mailed invitations to its spring collections to dozens of foreign fashion editors; almost none attended. And so it was back to Paris.

The Japanese film industry, once led by giants such as Kurosawa, has not produced an internationally successful movie in over ten years. The movie industry is dominated by two giant production companies, Shochiku and Toho, which also own most of the movie theaters. This means that the films of smaller independent producers have very little chance of being seen. Shochiku and Toho pre-sell their films to large companies, which buy up blocks of tickets to give to their employees as company benefits. The purpose is to avoid risk, to avoid having to suffer the verdict of the marketplace. As there is no need to appeal to the public, Japanese movie producers have grown completely out of touch. So the public flocks to foreign films.

One of modern Japan's great mysteries, which almost every foreign observer puzzles over, is how can the citizens of the world's richest country have such a poor lifestyle? The Japanese live in houses a quarter the size of the French or the English. And those houses are made of cheap, flimsy materials (as was graphically demonstrated by the Kobe earthquake). The variety of produce available in the food markets is a fraction of that which can be found in most large cities of the world. There are only eight TV channels (including satellite), versus dozens elsewhere, or even hundreds in America. There will soon be more channels available in upper Burma than in Japan.

The answer to the puzzle lies in those comfortable systems. Japan maintained ‘peace in the marketplace' by supporting cartels which set prices high, to the disadvantage of the consumer. It avoided competition in communications or the film industry by restricting the number of companies involved in service
industries. And through every possible means, the impact of the outside world was kept to a minimum: foreigners were not allowed to run companies here, to design or construct buildings here, to make movies here, etc. It worked all too well. Because of the high wall of regulation and the cozy systems which exclude them, foreign firms are now giving Japan a miss as they move into the rest of Asia. The president of a firm specializing in computer services based in Dallas recently told me that his company is considering Vietnam, Thailand, China and Malaysia – but not Japan. ‘It's not worth the brain damage,' he said.