Booknotes

BILL EMMOTT, AUTHOR Because I think in the 1980s, in particular, perceptions of Japan, particularly in the United States, but also in Europe, too, came to be characterized by the idea that Japanese companies had, I don't know, found the elixir of eternal strength. They were going to beat the world; they were going to take over the world; Japanese hegemony was predicted and feared by a lot of people. There was an idea that Japan and Japanese companies had discovered something that Americans haven't discovered, and that this was going to lead them on and on and on, and beat off American competition, make Americans more impoverished, make Europeans even more backward than they actually are, and so on. So this idea of Japan as--as being the juggernaut that was rolling through the world in a unstoppable way took hold of the popular consciousness and I--I think. And it was a myth, because I think the Japanese competition was significant, will be again significant after their present economic troubles have gone. But they're not invincible, any more than American business was invincible during its competitive heyday in the 1950s and 1960s, when we in Europe were terrified of the invincible American.

EMMOTT: 1983.

EMMOTT: I went out there as correspondent for The Economist. We have a bureau out there; then it was one person; now it's two people. So that shows the increasing importance that we put to Japan. I was a, you know, young man even younger than I am now, and the idea of going out to the East was really attractive to me. But, also, Japan was gradually impinging upon the consciousness of people in the West--in--in Britain and America--economically and in business terms, and I wanted to go out and find out what it was all about.

EMMOTT: I lived in Tokyo; two different places; one a very Japanese neighborhood in northern Tokyo. It was a university neighborhood, which was quite good to culturate me in the Japanese way of life and in the sort of middle-class suburban Tokyo, really. And then I had to move after two years, and I went into a more Westernized sort of high-fashion neighborhood, and that was like a good education in young, changing Japan, you know, the sort of more--more whizbang sort of place.

EMMOTT: Not very well. I learned some. I'm not proud of my abilities in Japanese, but if you or I were in a restaurant--if you and I were in a restaurant, I'd make sure you were fed.

EMMOTT: I never had a fixed idea about Japan or about Japanese people or about Japanese companies, so I don't think I could say that I've changed it since then. I think it's gradually evolved. I think as a journalist you shouldn't go in with--any situation with a fixed idea. You should go in with your mouth closed, and your eyes and ears opened, and you should be observing and constantly changing your impressions according to new evidence and new experiences that you have. So that's really how I think that my attitude to Japan has evolved over that 10 years, three of them when I was living there, the next five really when I was going to and fro between London and Japan about four or five times a year, sometimes spending several months there. It's just built and built and built, rather than there being some fixed view that I had at the start and then a transformation later. It just gradually evolved as you learn more and more about a country.

EMMOTT: Yeah, that's right. You know, it's funny that...

EMMOTT: Karaoke is the singing machine that was invented in Japan, where you--you're in a bar and you can sing along t--the lyrics to a well-known tune. You can sing "My Way," or you can sing a Beatles' song or whatever it is, where you have the lyrics on a piece of paper or on a video screen through a--you know, a laserdisc, and the backing tune is there. And in Japanese bars this became very popular in the '70s, and then more--even more in the early '80s, where drunken Japanese would croon away to fantasize that they were Frank Sinatra or some Japanese star or something. And I got interested in it because I got to think about Japanese brands and Japanese products and Japanese ideas that have got into the West, like Sony radios, or Toyota cars, or VCRs or whatever it is, and I thought to myself, `None of those products actually has a Japanese name, really.' We don't think of any of them as being quintessentially Japanese. We think of them as being the Japanese version of something we invented in the West. A Sony radio--`Sony', even the word itself doesn't sound very Japanese; a video recorder, you know, that's just a--a Western phrase. The only product that has come out into the--outside Japan into the West that has taken a grip with a Japanese name and with a sort of atmosphere to it that tells you something about the Japanese way of life, is karaoke. And this has become incredibly popular in the States, incredibly popular in Europe. I was in China last year and there were karaoke bars in Peking and in Shanghai, and so forth. And perhaps unconsciously, when people go in a bar and sing karaoke, they are actually sharing in something Japanese, something cultural about Japan, in the same way as when you drink Coke. Here I've got a glass of Coke. I don't think of this as being--drinking something American, but actually I am, and there's something subliminal about my association with America when I drink Coke and when I order Coke when I'm in Germany or wherever I am. And it's the same with karaoke. I think it symbolized to me a sort of slight subliminal e--effect of Japanese culture outside Japan. Because that sharing process in a bar of singing along, of putting away your fears and inhibitions about going up there on stage, and the fact that your audience, who are all as bad or even worse singers than you are, being tolerant of you and just sharing your fantasy, if you like, that's a very Japanese thing, and just implicitly unknown in a way to the people who are doing it in Texas or in Peking or whatever. They are actually feeling something Japanese in a way that they don't when they drive a Toyota car or, you know, use a Sony radio or something--that's just a common mechanical product. But karaoke is the only case that I can think of, where a real Japanese thing has started to culturate other people around the world.

EMMOTT: I live in London. My headquarters is in London, of The Economist. We were founded there and the core of our staff is in London, even though we have a lot of bureaus around the world. But the headquarters is there, so that's where the editor has to be. I live in London during the week, but I also have a country place about 100 miles west of London in Wiltshire, in the English countryside.

EMMOTT: We were founded in 1843, so we are 150 years old. That meant that when I became editor one year ago, I was just at the beginning of our anniversary celebration period. So most of my first six months as editor was--consisted of raising glasses of champagne in celebration of our time, which was fun. That made me think, `What a nice job this is.' So we were founded 150 years ago, and for about 110 years of that we were quite a British paper, mainly circulating in Britain, covering the rest of the world insofar as it was related to British commercial and political interests. But for the last 40 years we've become much more international. In the 1940s the e--then editor started an American section of The Economist, the American Survey section. And on the back of that, in the 1950s and then '60s and '70s, we started to promote the magazine outside Britain more, and also adapt the coverage very much to a more international position. We now have a very global perspective. We try to cover the world as if we were in an off-shore island, if you like, independent of all countries, and our readership reflects that now. We're--our total readership is 540,000 copies every week, and of that, 80 percent is outside our home country. So we're a very global company. The biggest single market is the US; that's about 210,000 copies; if you add in Canada and Mexico, that brings you to about 250,000 copies. So 45 percent of our sales is in--are in North America. The other big sale areas are Western Europe, outside Britain; that's about 120,000 copies; Britain itself, that's 100,000 copies; and then Asia Pacific, that's about 55,000 copies. So we're very widely spread, but we're very, sort of, pleased to have such a significant sale in the US.

EMMOTT: We print it in Shenandoah Valley of Virginia.

EMMOTT: We own it.

EMMOTT: We own it entirely. We initially bought 38 percent from the Glassmans, who were the editor and publisher of it, and the remaining shareholding was owned by Arthur Levitt, now chairman of the SEC. When he became chairman of the SEC, we bought his shareholding from him--that was last year--bringing our ownership up to 100 percent.

EMMOTT: We wanted that publication because--well, I think there's several answers to that--one, we felt that we--that it was a very profitable publication and a very good publication; it's a focused publication, niche publication for a specific area--Capitol Hill--but also it shares some of our values about independence, about sort of investigative spirit that we felt fitted with us. Also, our--the head of our then A--then head of our American operations, a lady from Texarkana called Marjorie Scardino--she had grown up in a way, running regional newspapers, local newspapers. She and her husband had run a chain of newspapers in Georgia. The Georgia Gazette was their main publication. And they really felt they understood--or she did, particularly, regional newspapers, local newspapers. And Roll Call was in a way, to her, a local newspaper, but about the sort of national politics that we at The Economist understood. So she really wanted to get that because she thought she could understand the business. And, indeed, she can, and the business is very successful. It's a very nice newspaper, and we now own 100 percent. And Marjorie Scardino is our chief executive back in London now, so perhaps it was a good thing to do.

EMMOTT: I think they might, you know. That's a good question. I don't think that they should particularly, but I think that they might because there is an--a suspicion of Japanese organizations, that they try to manipulate information for their own purposes. They are very significant spenders in the lobby industry over here, as has been documented several times by, for instance, Pat Choate in his book "Agents of Influence." And he pinpointed the Japanese because they're the largest. They're--they should be the largest because they're one of the biggest economies in the world and they've got very big corporate interests, so you would expect them to be a large spender. But the fact that they are such a large spender makes people worried about what they're doing with their money and what kind of influence that they're having. So a ma--a newspaper like Roll Call, which depends on advertising from lobbyists, but nevertheless, depends for its credibility on its independent reporting and its investigative reporting, would, I think, be tarnished a little bit in some people's minds by the idea that it was associated with a particular national group. Now we're British. We own Roll Call. Why aren't people suspicious of our ownership of it? I think there's probably two reasons for that. One is that the British aren't seen as a threat. We are a relatively unimportant economy. We're not a great threat to the United States economically or politically. Second, The Economist is a sort of established name around town. We have a reputation for independence, for integrity, for credibility, and so, therefore, nobody would expect that we would be manipulating Roll Call in some way. And I can assure you, we certainly aren't. But I think that association probably protects Roll Call from any idea that it could be being manipulated by its owners. We don't like being manipulated ourselves by anybody, so we're un--we're unlikely to do it to somebody else. I think with the Japanese there is a special fear that lies behind the title of my book "Japanophobia," because as Japan and the Japanese--Japanese culture, is so impenetrable, so difficult to understand, so inscrutable, so rebuffing really to outsiders, so I think it's scary. People get afraid of it beyond the reality. They exaggerate the fear that is there backed by the truth. Japan is just a--a difficult place to understand and, therefore, there is something of a phobia about it, which is why I called my book what I did.

EMMOTT: 1989.

EMMOTT: You mean for Japan or...

EMMOTT: Well, Japan has always described itself as the land of--as the origin of the sun. Their--the Japanese name for Japan is Nihon, which--the characters for which mean `origin of the sun'--the `hon' is origin and the `ni' is the sun--because they see themselves as the most easterly country in the world and that's the place where the sun rises first. So they see themselves as the origin of the sun. They have taken as their national symbol the sun, and that's what's on their flag. So the designer of this book jacket decided that the best way--the simplest way to print the wor--the notion of Japan and the idea--in the minds of buyers of the book was the sun.

EMMOTT: How many Ja...

EMMOTT: Oh, people. Well, the British population is 52 million; Japanese population is 130 million. It's a small country Japan. It's about the size of California in terms of land mass. It's very mountainous, which means that not much of it's in--inhabitable, and yet there's 130 million people crammed into the parts of Japan that are habitable. It's very crowded place. It's about the size of California, as I say, only just slightly bigger than Britain, and yet the population's double Britain--more than double Britain's.

EMMOTT: I think in writing about business and economics, there's often a problem for readers of going from the general to the specific. Economists tend to talk in very general terms. Even business writers talk in general terms. Management gurus like Tom Peters or Michael Porter throw out their five reasons for success, five formulas or whatever--and they're very difficult for people to understand, because what you and I do is actually work in specific companies; we deal with specific issues--C-SPAN, The Economist--we relate to our own experiences, our competitors and so on. And I think that in business writing it's a good idea to use case studies to show readers really a--a sort of worked example of how the theories actually have an impact, or are impacted on experience and reality. So I wanted to make some--draw some general conclusions at the start of the book and put out some general hypotheses, make some general observations, but then test those observations against the actual experience in four different industries. Why did I choose those industries? Because they were the most significant ones, in terms of the size of the Japanese investments in those businesses, but also they were industries which had attracted particular media attention and particular popular attention. So I wanted to say, `Look, these are the things you're worried about--the car industry, Hollywood, Wall Street, Bridgestone and Firestone'--because it was this great American company that had fallen on its face and then been picked up by the Japanese--`so these are the things you've heard about. Let me show you how actual practices worked in these cases, but then let me surround that with general observations and general conclusions,' drawn partly from a questionnaire survey that I did of Japanese companies in America and in Europe to try to draw out from the anecdotal--necessarily anecdotal nature of those case studies to get more generalized conclusions, because there's another problem in--in business writing, which I call `the fallacy of the aggregated anecdote.' You and I and all other people hear anecdotes about things. We have little bits of experience, and it's very easy for us to conclude that just because we know that one thing or those three things that somebody tells us about these three facts, that you can generalize from those three facts and aggregate them into a whole picture. And the fact is, you often can't. The whole picture is more complicated or different than the anecdotes seem to suggest. So although you need to, in business writing, provide specific examples, really show people how in a real case something has happened, you mustn't draw all your conclusions from those anecdotes; you must find some other more general, more rigorous data in which to reinforce and produce your general conclusions. Business writing's a rather dangerous thing, I think.

EMMOTT: Yes.

EMMOTT: (Nods)

EMMOTT: In 1911 and--right at that early part of the century. Ford became a big investor in Britain, set up its first factory in the northwest of England and then expanded in other parts of England. In Britain, at the time, the car industry was characterized by a lot of small companies. They were really craft companies with the individual workman who would make their cars in individual ways. No--no car was identical to the previous one that was being made. Everything was handmade almost and designed like, sort of, handmade shoes or something. Ford came in with its new ideas about mass production, with its ideas about standardization and production line and swept aside the British car industry. It just drove it out. By the 1920s, most of the cars being made in Britain were Ford cars. Some British companies, like Austin then tried to copy the Ford techniques. Still, now today, actually the majority of cars made in Britain are American-made cars; they're American-owned cars by Ford and General Motors in the Ford plants and in the Vauxhall plants. So in a way, we lost the car industry, in the emotive terms that people use, to American companies in the early part of this century. And at the time, there was a bit of a backlash about this. There was a backlash because it wa--it was considered unfair. American companies were thought to be operating in unfair ways because of your economies of scale or protection that you were using in your market. And British companies often thought that they were unfairly kept out of your market, and that was preventing them from competing properly in Britain. There was protection against carmakers in Britain, which was one reason why Ford brought so much of its production actually onto the British mainland, because there were tariff barriers raised against imports from the States, so Ford had to build its cars in Britain. So many of the same phenomena were there in those days, as have been there in the US in 1980s, vis a vis, the Japanese car industry and the American one. Japanese came along and built car factories in America, picked up 30 percent of the--of the US market. GM and Ford and Chrysler shouted foul. `This is no good, everything's unfair. They're efficient because their domestic market must be protected from us, they're bringing unfair new techniques, they're investing in new factories, or we're saddled with old ones with all these health care and pension costs. Everything's--must be unfair.' It's the same cry 50 years later. And as always, there's some truth in it; but mostly it's misleading because it won't really lead you to a solution to your industrial problems. It might, if you are sensible, help focus your mind on your own weaknesses because the American car companies in Britain showed how badly the British companies were making their cars. Now my hope is that in America, the Japanese investment and the Japanese competition has shown American car companies how badly they were making cars before. And now I think you can see a real sign of improvement, a real change in the American car industry thanks to that. So I hope it's had a benign effect in America.

EMMOTT: No, we had a saying that you were `oversexed, overpaid and over here.' That's right. We--you were outsiders, you were--at the time in the 1940s, although Britain and America had a relationship for all those years, all those decades, all those centuries, really, an ordinary British person had never actually met an ordinary American. Suddenly, when the GIs came over in the 1940s, these were the first ordinary Americans that most British people had seen outside the movie theaters. So it was a shock. It was--you seemed like aliens. You had more money than us; you seemed brasher; in some ways more sophisticated, in some ways less sophisticated. The reaction was, in some ways, the same as the reaction in America to sudden exposure to actual Japanese and to actual Japanese companies being on your soil. For years, before the 1980s, Japan had really had its impact on America, but through exports, through cars coming over on container ships, through consumer electronics goods coming over in airplanes, almost, sort of, remote control competition. The change in the 1980s was that Japanese companies actually came over here, over to the United States. They were employing Americans. They were sacking Americans, in some cases, firing them. In other cases, they were training them well. They were hiring American managers or maybe, in some cases, they were bringing in their own managers. But there was this direct contact. And that, of course, sometimes caused pleasure, but very often it caused pain because of this lack of understanding and lack of familiarity, in the same way as British people were not familiar with ordinary Americans or with American ways in the 1940s. I don't think it would have been right in the 1980s to describe the Japanese over here as `oversexed,' but they were certainly considered to be, in a way, overpaid because Japanese companies were thought of as being richer than American ones, thanks to what was going on in Japanese financial markets. Japanese companies seemed to be able to afford to buy things at higher prices, like Rockefeller Center or Pebble Beach Golf Course or Columbia Pictures in Hollywood, tha--they were able to buy these things at higher prices than American bidders seemed to be willing to pay. So not oversexed, but certainly overpaid, and sure as hell, they were over here.

EMMOTT: Well, the person who bought that golf course went bankrupt and defaulted on his loans, and it had to be taken over by his banker and now it's in somebody else's hands. So, no, it wasn't a good move for the person who actually bought it.

EMMOTT: They've had a lot of trouble with Columbia Pictures. They've had a sort of revolving door of the top managers. They spent way too much on buying in the management, buying--spending millions to get in the top managers, and to buy out their companies to bring them in. They've had a lot of cultural problems in adjusting to the idea that they, a Japanese company, should be running this quintessentially American institution, this entertainment company. I don't think that its problems are any different from that that any outsider to Hollywood has. I mean, Hollywood people are strange people. They seem to eat different things from the rest of us, you know. They have different minds. And basically they put their hands into your pocketbook and take out your money, is the impression that most outsiders have. So I don't think it's unusually strange to the Japanese; it's just that the Japanese are an outsider to Hollywood. And they have found difficulty. I think that they will never earn their money back on what they've spent there because the price was very high, and the profits that they're going to make are not going to really pay back the acquisition cost, the interest cost on that. Recent experience suggests, however, the Japanese are not the only people willing to pay high prices for entertainment assets. The bidding battle for Paramount, for example, shows that other people are willing to pay huge prices. So it may well be that Sony and Matsushita, who also bought Universal Studios in Hollywood, will be able to sell on all or part of their Hollywood assets at even a profit. So it wasn't necessarily a bad deal in the long term, but it was a hell of a difficult struggle for them managing it while they owned it.

EMMOTT: Bridgestone Corporation is a tire company based in Tokyo.

EMMOTT: Well, the founder of Bridgestone Corporation was a man called Ishibashi. Now in Japanese, `ishi' means stone, and `bashi' is bridge. So he reversed it around. He'd seen the Firestone Corporation, which was, you know, the world's leading tire company since the 1920s, really; famed--the world's most famous tire company. He looked at his name, Ishibashi, stone bridge, thought, `If I reverse it, I'll be almost like Firestone,' so in English it's known as the Bridgestone Tire Corporation. So he was emulating the Firestone company. So I suspect that when his successors found the Firestone company up for sale and within their grasp, actually this was, implicitly, almost like the realization of a dream. You know, finally the company that they'd been following and competing with and emulating for all those years was available to them and they could grab it. Consequently, they grabbed it at a hugely inflated price and spent the next three years suffering the consequences, and suffering billions of dollars worth of losses.

EMMOTT: No. I don't think they are. I think that they have--I think they h--they now feel it was a mistake. They--there are really two ways--let me put it this way, if you're investing overseas--you're expanding overseas, there are two ways in which you can do it; you can either build your own plant and gradually build up in a sort of organic way in the overseas market, or you can take the policy of the great leap forward. You can buy an existing company at a large price, but at least you'll have a--already in place--a plant already in place, a presence in the market. The great leap forward is very tempting always to managers because it seems to solve their problems just like that. And that's what the Japanese went for with their acquisition of Firestone, an established position in the market. But the great leap forward is--can be very difficult because you're buying all the problems that the company had. You've got to solve them, you've got a whole lot of attitudes, often labor problems, often managerial problems, and maybe the real condition of the company is worse than you thought it was, even after you've done your due diligence. And now I think the Japanese, if they're honest, at Bridgestone--and probably would be in private over a glass of sake and a singsong at karaoke--they would say that they really wish that 10 years ago they would have pursued the policy of green field organic growth by building their own factories and building up their position in the market rather than by buying Firestone. I think that with hindsight--and hindsight is always a very handy tool; doesn't always help at the time, but it's handy later--with hindsight I think they would have rather gone that gradual, but safer route. Now they've spent three or four years turning the company around, suffering the pain; they're now making profit again at Firestone Corporation in the United States, and, therefore, they're probably not as unhappy about it as they were two years ago.

EMMOTT: Two things happened, really. One, was that on this--on this side of the Pacific, the government realized that the strong dollar, which had been the Reagan dollar, was hurting America, that American business couldn't compete with the dollar that strong against the yen at 250, and--and strong also against the D-mark in Europe.

EMMOTT: Yeah.

EMMOTT: I mean expensive in terms of other currencies, so that it took 250 yen to buy $1, whereas now the dollar is much weaker; you only need 110 yen to buy $1. So that's what I mean by strong. I mean a--a really expensive dollar, which means that American exports were very expensive. They couldn't compete with lower priced goods from overseas. But, also, foreign imports were very cheap in the American market, so they flooded in. That helped bring about the huge current account deficit, huge trade deficit that America had from the middle of the '80s on. So that was the effect of this policy of an expensive dollar. And in the mid-1980s, the administration here decided that that was a mistake, that it should change its mind and that it should try to push the dollar down, make it cheaper in terms of foreign currencies. So in a concerted effort started at the Plaza Hotel in New York in--in September 1985, the G-5 countries as they're called--that's Japan, America, Britain, Italy and France--agreed to intervene in the currency markets and begin pushing the dollar weaker, making it cheaper in terms of other currencies, and getting the yen and the D-mark more expensive.

EMMOTT: They were. I must have missed them out of my five.

EMMOTT: Well, it became the G-7 a bit later when Canada and Italy joined it, actually. Yes. The other--the country I meant to include was Germany and not Italy. The G-5 was expanded to the G-7 about a year later than that because Canada and Italy said, `Hey, why aren't we in the club?'

EMMOTT: No, it took, oh, about three or four years for that process to take place. But I think that their timing was good because the money markets were beginning to realize that the s--expensive dollar was unsustainable, that America was breeding trouble with its deficit, and that something had to give. So the markets were inclined to go in that direction anyway. And the policy change by these governments helped to push the dollar in that direction. It sort of--they were going with the market, and, therefore, the markets were encouraged by it. Over the next two or three years, the dollar fell dramatically against the yen, from 250 down to 180, 160, 150, and eventually to the current position, around 110 to the yen. And other currencies changed as well. But that process helped to make the yen much more--much more expensive.

EMMOTT: I think that government intervention in the money markets is often wrong. It often doesn't work and it's often a waste. I think that at that time, it was going with the market, with the desires of the market, and, therefore, actually, it was the good thing to do. Later I think there was too much interference in interest rates around the world to try to help this process. And that interference in interest rates actually helped to bring on the '87 crash, because all the tension was on interest rates connected to exchange rates, rather than focusing on domestic policy.

EMMOTT: Yes.

EMMOTT: Right.

EMMOTT: It had risen far too high, is one lesson...

EMMOTT: By anybody's standards.

EMMOTT: It happened because of a combination of things. It happened, one, because Japanese companies had been very, very strong and they'd been strong for a very long time, so that investors--Japanese and foreign investors, came to believe that that strength might be permanent, and, therefore, they wanted to buy those shares because they thought their earnings would go on and on and on. But also they were emboldened to buy those shares because in Japan, the government has had a tradition of interference in the economy and particularly in financial markets. And there came to be a belief in Japan that the government would never allow the stock market to fall, that there was always going to be a safety net brought in to prevent a crash. When investors think that there is no downside risk, and they think the prices have only one way to go and that is up, they will buy and buy and buy. And the fact is that it was a myth that the Japanese government could prevent a crash. The idea of the safety net was a myth, but it encouraged people to buy and push prices up way beyond where they objectively should have been. There's no objective value, in a way, in a market, but it was pushed up beyond the sustainable point. At the same time Japanese property prices were rising very, very fast. Why? Because banks were lending very liberally. There had been a lot of financial deregulation just as there had been in the States in the 1980s. Banks were unable to compete in lending to companies, so they decided to lend to anything else they could find. Property was the easiest thing. That pushed up property prices by double and treble in the big cities in Japan in the late '80s. Share prices, to some extent, are connected to property prices because people can use property as security on which to borrow to invest in shares and vice versa; it becomes a circular thing. So it--these two things combined to drive prices up in a great speculative bubble. Bubbles always burst in the end. The sun also sets, as my previous book said. And that's what happened in January 1990; the turn came. Perceptions in the confidence of investors switched. Suddenly, people started to panic about whether or not this bubble could go on, so they decided they'd better sell before everybody else did, before prices fell. Also, interest rates started to rise in Japan because the government was getting worried about the inflationary a--aspects of this process. So a boom, which had been going on and on in a sort of hysterical way, suddenly turned into a bust. That's what happens in financial markets. There's a sort of--there was a great book in the--in the 18th century called, po--"Popular Delusions and the Madness of Crowds," and that's what financial markets are like, crowds rush in one direction thanks to ma--often, a popular delusion, and then suddenly the crowd changes its mind and rushes back again and that's what happened in Japan.

EMMOTT: Very difficult to cite these figures straight off the top of my head, but...

EMMOTT: Yes.

EMMOTT: Britain, out of those three, has the highest union membership. British, if you take all companies, it's probably around 50 percent now, 45 percent, 50 percent. US, it's down to the 30s, even below, I think, nowadays. Japan, it's somewhere in between those two figures; it's about 40 percent, 45 percent.

EMMOTT: The Japanese inflation rate now is negligible; it's 1 percent. It's very hard even to believe that those statistics are true at that level, you know, it's just--there's--there's no inflation in Japan, really. America, it's in--around 2 1/2 percent, 2 percent, 2 1/2 percent. In Britain it's a bit higher, 2 1/2 percent to 3 percent in the--the headline figures. Underlying inflation, once you take out housing interest, which is quite a distorting factor in Britain, inflation is actually 1.8 percent.

EMMOTT: Yes. That's--that is difficult to--to compare. The reason it's difficult to compare is because I could tell you whose tax rates are higher, but it depends on the level of income at which those tax rates bite. So Japanese tax rates are actually higher than those in Britain or in America. The mar--marginal tax rates in Jap--on income in Japan go up to 65 percent. You can pay 65 percent of an extra bit of income in Japan, but that bites in at a very high level. In Britain the top marginal income tax rate is 40 percent, much lower, but that bites in actually at a very low level. So the average amount of tax that a Briton pays is higher than the average amount of tax that a Japanese pay. Americans are in between, and a--as I say, Japanese pay, on average, a relatively low level of tax, but the disincentive effect is quite high, you know. The marginal rates are very high in Japan.

EMMOTT: Ooh, that's a--that is a difficult thing. I would say that the individual has the least power in Japan where collective action is valued above that of the individual. Individual freedom is not actually even sought very widely by people. People identify with groups, with teams, with--with factions of--of people; they don't identify as individuals. I think probably the individual has most power in the US. There is most sense of control over your own destiny, over--over your own life. I don't think that should be exaggerated to an absolute sort of freedom, but nevertheless, out of the three it is definitely higher in the US.

EMMOTT: No.

EMMOTT: Oh, a lot of time but always short trips, one month, two weeks, that kind of thing.

EMMOTT: Yes, I did. I went to a lot of the Japanese car plants. I went down to Nashville, Tennessee, where Nissan has a plant. I went to the Toyota plant in Kentucky, for example. I visited Sony's place in Columbia Pictures in Hollywood, Culver City. I went to Sony's offices in New York, which is where their--their American headquarters are. So yes, I went--and I went to Bri--to Firestone, in Akron, Ohio. I--yeah, I went around.

EMMOTT: Hmm. That's a difficult question. They were...

EMMOTT: No. Everybody was willing to talk to me. I think the least open, probably the Japanese financial companies. The Japanese financial companies like Nomura Securities, Nikko Securities, Daiwa Securities, Yamaichi Securities, on the surface, quite open and quite hospitable and, indeed, they are hospitable. But they're not very revealing. They don't tell you very much about what's going on. They're very conspiratorial. The truth is rather different from the appearance, if you like. There is a Japanese saying that they--what they say is the (Japanese spoken) is different from the (Japanese spoken). (Japanese spoken) is truth, (Japanese spoken) is appearance. And people stress the appearance often in Japan and not the truth. And the securities companies, to my mind, are the biggest proponents of that; they often give you a misleading reality behind which you have to dig around for the truth. So they were the least easy to really get a feel for. I think that the manufacturing companies are much more open and much more transparent. You can go around a factory, you can see the way people work, you can talk to the workers very easily in all these companies, and you can get a real sense of how the place operates. So I found the car companies, in particular, to be the easiest.

EMMOTT: No. None.

EMMOTT: None. None.

EMMOTT: Yes, a lot. So they vary quite a bit. Even between Toyota and Nissan, they vary a lot. Toyota has more Japanese managers, they have a real influence, they are in control, whereas at Nissan, there's an American boss, Jerry Benefield, who is a f--guy who came in from Ford several years ago. Quite a lot of the managers there are from Ford. It's a more American-run plant. There are some Japanese managers. There are more conduits for information and control from Tokyo than there are actual day-to-day operations managers there on the--on the site. So they vary quite a lot. The great--the really interesting thing about Hollywood, I think, and about those investments in Hollywood, is that they are so American-run. They're very independent of the parent company because, you know, when all companies, American, Japanese, British, whatever, invest overseas, normally they keep control of the core decisions at head office. But in the case of these entertainment investments, Sony and Matsushita, couldn't control those from head office because the real business is going on in Hollywood. Japanese entertainment doesn't sell overseas; American entertainment does sell overseas, so that the real asset was there in Hollywood. If I put it another way, when Amer--when a Japanese company builds a factory in America or in Europe, normally the Japanese are the teachers and the Americans or the Europeans working there are like the students. The Japanese bring in their ideas and teach the Americans or the Europeans how to run the factory. In entertainment it couldn't be like that. Sony didn't know anything about how you make motion pictures. They were asking the Americans, who they were employing there, to teach them about the business and to do the work for them, the effect being, the actual control over now quite a large proportion of their sales, is sitting there in Los Angeles and in New York. They really delegated control to a--actually quite surprising extent, to Americans.

EMMOTT: Yeah.

EMMOTT: He's the author of "Rising Sun," a thriller novel that was published a couple of years ago; now is a major motion picture with that well-known Brit as its lead player, Sean Connery. He thinks of himself more as Scottish than British, probably, but there we are.

EMMOTT: No, it is not a real interview. At the beginning of Michael Crichton's book, "Rising Sun," he has a video transcript there of an interview of a police officer. And this is a police officer who was investigating a murder at a--or a death at a big Japanese corporation in Los Angeles. And this interview introduces the theme of the book, which is, the sort of cultural clash between Japanese and Americans, suspicion about the motives of Japanese businessmen in the United States, suspicion about the connections between Japanese businesses and some of the Americans they might manipulate, such as the Sean Connery figure in "Rising Sun." That transcript there starts off the book, and then at the end of "Rising Sun,"--actually, at the bibliography, Michael Crichton very interestingly says, `This was a work of fiction, but I want to make a factual point in this book. I have a serious point to make. I think that Japanese investment has grown too big in the United States, that Americans have been naive, and that, particularly in high technology industries, Japanese companies are becoming too powerful, taking over control of too big a portion of American business. And that this is going to be bad for the United States.' So there it was, a best-selling novel, a thriller novel, a great novel, being used actually, not just as a work of fiction, but as a work of polemic, a work of fact. Michael Crichton's very good at that. His latest novel is doing the same thing in the sexual harassment field. I felt that that novel, "Rising Sun," was liable to have a much bigger impact on popular perceptions of business, in general, Japanese business, in particular, than piles and piles of works of non-fiction--serious books by economists and business theorists and all that kind of thing. It reaches more people, but also I think popular entertainment. Movies and books, novels and so on, actually do have more of an impact on our ideas and our thinking about things than the serious things we read, quite often. So I thought that this was a much more interesting and significant target as a sort of debating partner, opponent, than piles of books by Japan experts.

EMMOTT: No, I do not.

EMMOTT: Because my book is fa--is fact and not fiction. I wish it would.

EMMOTT: Yes, I am.

EMMOTT: Since the end of March, last year. That's right.

EMMOTT: On average, they've stayed 10 years. I'm the 15th editor of The Economist, and you can divide 15 into 150 quite easily. So it's clearly about a 10-year span. There's no guarantee of that. My predecessor as editor just stayed seven years. He then left to go into central banking, to be deputy governor of the Bank of England, rather as if somebody here would go and be Alan Greenspan's deputy at the Fed.

EMMOTT: I was born in London.

EMMOTT: I went to school in the west of London; place called Hammersmith.

EMMOTT: I went to university at Oxford, to Magdalen College in Oxford for three years, studying politics, philosophy and economics. It's a very sort of traditional British stu--subject for study. It used to be there really for a--sort of colonial administrators and civil servants as a sort of general grounding in the ways of the world, if you like. And now it's quite a common background for political and economic journalists, actually.

EMMOTT: Yes.

EMMOTT: Well, he doesn't like the fact that the British government permitted Japanese car companies--first of all, Nissan, now Toyota and Honda, to build factories in Britain and then export their cars into Europe--into the rest of Europe. France has traditionally had very tight restrictions on imports of cars, in particular, cars made outside the European continent. They're a very protectionist place. This--these investments by the Japanese in Britain were, in part, a way--an attempt to get around those protectionist barriers because a Japanese car imported from Japan came up against those barriers, whereas a Japanese car made in Britain was, according to European community rules, allowed into France. So Jack Calvet saw Britain as a threat to those protections, as an unsinkable aircraft carrier. I think it's complete nonsense.

EMMOTT: It's tiny. Japanese ownership of assets in America is around sort of 5 percent, 6 percent, 7 percent. In Britain it's lower than that; it's about--it must--I don't know--even know what the figure is, it's so low; it's sort of--2 percent, 3 percent. The American presence in Britain is much bigger than the Japanese.

EMMOTT: Yeah, well, Holland is a small country, but one that lives on trade and lives on overseas investment. The three top investors in the United States, in terms of investments in real corporate assets, Britain, Holland and Japan.

EMMOTT: That's right, it's a tiny country, but if you're a Ja--if you're a Dutch company, you can only expand so far inside Holland. You want to use your capital and invest overseas. And so tha--that's what they do.

EMMOTT: Because I think that the Japanese experience over the last 10 years was a case of hubris followed by nemesis. What do I mean by that? I mean that they became overconfident in the 1980s. They had a tremendous run. They were considered by Americans and others as invincible. They started to believe their own propaganda, their own publicity, and started to think of themselves as invincible. They thought that the rise of their financial markets--of their stock markets was something that had re--that reflected a reinvention of economics, a reinvention of the laws of finance, and that they had invented a way to get very cheap capital and to buy assets in the US and everywhere else, and roll on over--over the world. They overinvested; they overspent for all these assets; they overstretched themselves, because of hubris, which is defined as overconfidence, a sort of arrogant, slightly insolent view of your own abilities. And in the Greek legends, hubris is followed by the goddess of Nemesis, which is retribution. And after you're overconfident, you get retribution. The crash of the Tokyo stock market starting in 1990 began that process of retribution. Now the troubles that the Japanese economy is in, very serious recession, very serious financial problems for Japanese banks, lot of Japanese companies unable to get new capital, put a big strain on their balance sheets. They're suffering from retribution. So the Japanophobia that I wrote about in that book has died down somewhat in the US, because people are saying to themselves, `Those Japanese have had their retribution.'

EMMOTT: That is a view that I have about the future. I am optimistic. Some people say to me, `Are you an optimist or are you a pessimist?' And I say, `I'm neither; I'm a journalist.' But actually, I am an optimistic journalist. Why? Because I think that the world is going through a dramatic transformation, as huge parts of it rush to rejoin the market economy. China, India, Russia, the former Soviet satellite countries, Central Europe, Latin America, are all rushing to rejoin the world market economy. And that, to me, produces prospects for a golden age of capitalism. It also produces dangers that we all need to write about. Fortunately, it produces a lot for the economist to write about.

EMMOTT: Thank you.