How Japan can build a sustainable future post-COVID-19

This article is brought to you thanks to the collaboration of The European Sting with the World Economic Forum.

Author: Makiko Eda, Chief Representative Officer, World Economic Forum Japan, Member of the Executive Committee

• The business culture in Japan has been resistant to change.
• There is a traditional preference for seniority and lifelong employment and a lack of gender parity.
• Japan must challenge this status quo to build a better future after COVID-19.

The pursuit of a “winners-take-all” strategy has been traditionally frowned upon in Japan. Rather, harmony has been an integral part of the sustainable prosperity of a society. Geographical isolation and a culture of rice farming are some explanations to this view, as the country’s isolated setting meant that the natural resources were limited and, therefore, had to be shared in order to survive. In today’s world, however, I wonder if sometimes this wonderful trait hinders drastic, necessary change.

I cannot help but feel that changes are slow in Japan. There are challenges that have been on the table for decades and left unresolved, notably an outdated approach to work and a lack of gender parity. As a result, economic growth has stagnated.

The resistance to change is seen often in Japanese organizations, where the preference for seniority and lifetime employment remain strong, and there is less freedom to move away from these tendencies, especially compared to Western countries.

A sense of responsibility and care for employees who have worked hard and believed in life-long employment and the seniority system may make managers hesitant to make major drastic changes. Labour policies also have not caught up, even as there is more mobility in the workforce as businesses are sold and restructured. There is still a lot of peer pressure to keep traditional structures for employment and promotion, holding back progress.

In addition, over the past decades, Japan has not made significant steps toward closing the gender gap. The nation was ranked 121^st out of 153 countries in the World Economic Forum’s Gender Gap Report 2020. Ms. Izumi Kobayashi, former Vice Chairman of the Japan Association of Corporate Executives (DOYUKAI) and currently a member of the World Economic Forum Global Future Council on Japan, rightly commented that corporate leaders often say it takes five years to promote women to executive positions, indicating that their promotion system is based on age and tenure, not merit.

Why progress is key to economic growth

Japan’s productivity remains low, at 21^st out of 37 member countries of OECD. Although the quality of life in Japan is ensured by controlling the rise in prices, in the long run, the country must take action to change its approach to work. Past practices must be reset, especially as we build a post-pandemic future.

In our economic activities, stability and predictability are important, and it is important for employees to be able to have job security. However, it would be a disservice to continue unprofitable businesses and force people to work in jobs with little potential for growth.

Given the rapid acceleration of automation driven by the Fourth Industrial Revolution, reskilling will be critical for the future of jobs. Reskilling to future growth areas, in parallel with an enhanced safety net provided by the public sector, will be key to the growth strategy for Japan.

Traditional ways of working are also becoming more constricting for employees, as more than 30% of new hires leave within 3 years. The number of students who want to become government officials has plummeted to the extent that the Minister in charge of Administrative Reform published a sense of crisis.

And we cannot afford to wait any longer on gender parity.

I saw the effects of diversifying a workforce first-hand, as head of a Japanese subsidiary of a company based in the U.S. almost 20 years ago. Once there was a clear recognition that the company’s diversity efforts were lagging behind those of rivals, it quickly appointed more female, minority and young employees to executive positions. While not everything has gone smoothly, the momentum led to a deliberate hiring of a diverse workforce and the emergence of people who are exploring new career paths outside the company – something that had previously been unthinkable. As painful as the process was for some, it led to corporate dynamism, economic development and innovation.

The population is shrinking in Japan, and the working population continues to decline. It’s time to get serious.