Economic prophet of the Information Age
THINKERS OF THE NINETIES
Monday 11 December 1995
For the individual this may be a marginal issue. For the company, however, it is a matter of life and death. Information technology has proved a corporate killer, destroying old companies, creating new ones and detonating the complacency of once impregnable fortresses such as IBM. And in the wake of IT comes globalisation, the transformation of the world into a single market through the instant availability of information, the philosopher's stone of the new age.
Companies, even small ones, now know they must surf the global technological wave or die. The trouble is, they must do so in ignorance. They know that change is happening, they may know a few general trends, but beyond that there is a predictive vacuum. Into this vacuum have rushed the management theorists - technocratic gurus offering corporate solutions. In Club Class you see ranks of eager managers consuming their books for hints about what to do next, how to get on. From such books and from conferences, big money is to be made and so, unsurprisingly, some of these gurus are plainly frauds. Others deal in the minutiae of management, some with the culture of companies. But the most interesting of them attempt to explain the whole world to the company mind. And of these, the most important is the Tokyo prophet, nuclear engineer turned management consultant Kenichi Ohmae.
Ohmae's importance lies in the fact that he has become much more than a corporate adviser. For most of his career he has been a senior partner of the management consultants McKinsey & Co. But even when he was with McKinsey, he was voted the most influential person in Japan for his impact on public opinion. Now he has left to become a one-man consultancy for governments and companies.
Ohmae's central point is that we are moving into a single, information- driven economy. This subverts all existing frontiers and most contemporary knowledge. The nation state is dissolving, to be replaced by regions of economic interest. Yet most of our economic information about the world still comes from state sources. It is, as a result, largely wrong. "In a borderless economy," he writes, "any statistical regime that takes the nation state as its primary unit of analysis is - and must be - badly out of date."
So, for example, the trade wars between the United States and Japan happen because there is thought to be a huge trade imbalance - Japan in massive surplus, the US in huge deficit. In reality, says Ohmae, there is no such imbalance. If an American silicon chip manufacturer sells chips in Osaka, they may well have been made in Malaysia and will not, therefore, show up in US exports. Once all such "hidden" deals are taken into account, both the surplus and the deficit vanish. The trade wars are being fought over an illusion.
The illusion is created by the antiquated interests of the nation state. The real economic units of the new world order are regions that cut across national borders. So the true interests of the north of Japan may lie, for example, in fishing deals made with eastern Russia rather than in bureaucratic subjugation to Tokyo or Osaka. In the case of the UK, Wales and Scotland may be better off working with New York, Hong Kong or Paris than with London.
This idea has immense political implications. The nation state tends to be driven by highly inefficient political considerations. In Japan, for example, the centrality of rice and its cultivation both to the culture and to the bureaucracy has led to a highly protectionist agricultural regime which results in uneconomic rice paddies persisting close to the centre of Tokyo, the most industrially dynamic region in the post-war world. This level of protectionism means that Japanese consumers, possessed of a home agricultural base, pay more for their food than the Singaporeans, who import everything they eat.
All nation states tend towards protectionism because they wish to preserve their own power. But information technology means that such policies will inevitably be undermined. A customer in Sapporo can order clothes, via credit card, from LL Bean in Maine and they will be delivered by DHL, bypassing local controls. Equally, even Japan's tight banking controls can be subverted and its low interest rates avoided simply by phoning or faxing a 24-hour banking service such as First Direct in Britain. Increasingly, economic transactions will become invisible to government.
Resistance to these developments will simply hold back economic growth. This is not, in Ohmae's terms, a political or philosophical argument, it is an acceptance of reality. His position is that of a hard, deregulating free-marketeer. But he does not present this as a conviction or belief, rather as a clear-eyed perception of the way the world is going.
Culturally, this makes Ohmae something of a hybrid. At one level he can be seen as another propagandist of oriental economic dynamism. In this role he trashes the European Union as a hopeless, bureaucratic attempt to overrule regional economic interests. In contrast, he praises the Asian willingness to live with massive regional variations in economic performance. Some parts of China, for example, are 20 times richer than others and the Chinese accept this as an inevitable result of their rush to join the global economy.
Yet equally he does not necessarily make comfortable reading for the Asians. Indeed, his worldwide prominence is, to a large extent, based on his scathing, fundamental criticisms of Japan. Japan's economic success, he insists, has been dangerously and narrowly based on a few product sectors - most obviously cars and consumer electronics. These have succeeded in spite of, not because of, the activities of Japanese institutions. Government has relentlessly defended its own bureaucratic position and sapped the wealth and energy of Tokyo and Osaka by delivering pork-barrel projects to rural regions which have no need of them.
The hope for the Japanese lies with what he calls the "Nintendo kids" - the new generation that has no intention of bowing to the bureaucratic demands of the old. They know how the information world works and see no reason to honour authority. This, in Japan, is a revolutionary position.
Ohmae stands in opposition to both Francis Fukuyama and Samuel Huntington. He rejects Fukuyama's "end of history" argument because he believes the end of the Cold War resulted in millions of people being freed to enter history with their own economic demands. He rejects Huntington's "clash of civilisations" thesis because conflicts frequently occur within civilisations and because he sees economic regionalism as a far more powerful force than mere cultural difference.
Such arguments are evidence of the intellectual crudity of his position. He completely misses Fukuyama's point: those millions are not, in his terms, entering history, they are acquiescing in the liberal democratic ideal which marks the end of ideological history. And Ohmae's dismissal of Huntington demonstrates a failure of imagination that runs through his work: he refuses to accept the power of culture and identity, probably assuming that even they will be subverted by the flow of information.
But this reflects Ohmae's roots in the culture of management consultancy rather than academia or strategic studies. Companies want strong, simple messages and workable solutions. Sensitive to his market, Ohmae oversimplifies in his enthusiasm to sell the global, electronic future. This, to the reflective mind, may make his ideas questionable and crude, but to the company man it makes them easily digestible. He has become, therefore, a spectacularly effective thinker.
What he says undoubtedly changes the minds of powerful people and, thereby, conditions us all, like it or not, to believe in the incomprehensible cliche that is the Information Age.
5: Kenichi Ohmae
'In a borderless world, traditional national interest - which has become little more than a cloak for subsidy and protection - has no meaningful place'
CAREER: Aged 52, Kenichi Ohmae was a physicist, receiving a PhD in nuclear engineering from Massachusetts Institute of Technology. He joined Hitachi as a senior design engineer on Japan's prototype fast breeder reactor before becoming a management consultant with McKinsey & Co. He now works on his own as a consultant to companies and countries. He has been voted the most influential person in Japan.
WORK: His two most influential books are The Borderless World (1990) and The End of the Nation State: the Rise of Regional Economies (1995). His ideas flow directly from his management consultancy work and are intended, therefore, to offer practical solutions.
LIFE: He lives in Tokyo with his wife, Jeannette, and two sons, who share his spare-time interests in music, sailing, motor cycles and scuba diving. He is chairman of Reform of Heisei, a citizens' political group aimed at reforming Japanese bureaucracy.
CRITICS: Rival consultants accuse him of simply being wrong, notably in his analysis of Japan - both his praise of its long-term thinking and his criticism of its bureaucracy. Academics find his ideas too crude to be useful; he seems to assume that the electronic age will overcome all cultural differences.
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