Paradigm Shift: Kansai Enterprises Contemplate a

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COMMERCE FOR ITA BRICKMAN AND SANTILLO

DOE FOR PI BISCONTI AND EE CHALK AND KIMBIS

E.O. 12958: N/A
TAGS: EINV ETRD ENRG PGOV JA
SUBJECT: Paradigm Shift: Kansai Enterprises Contemplate a
World Economy with a Shrunken U.S. Market, Spreading
Joblessness, and a Change/Choice Election


1. (SBU) Summary: "Paradigm shift" was the catchphrase of
choice during the annual meeting of Kansai area economic
groups, global companies, high tech firms, and other major
enterprises. With major stakes in manufacturing for export,
many participants bemoaned the gloomy prospects for dealing
with the disruption to a world economy of shrinking U.S.
individual and industrial consumption. Others expressed
worries about a future of dealing with China as both market
and competitor. Some emphasized Kansai's comparative
advantages in solar, advanced batteries, and other green
technologies, but positive outlooks for these sectors,
noted others, only partially offset current losses in a
wider array of sectors. The collapse in foreign, and
particularly, American demand that has led to large numbers
of layoffs, now reaching beyond "temporary" contract
workers to include regular employees as well, triggered a
substantial debate on corporate social responsibility for
the unemployed. Generally inclined to support the ruling
Liberal Democratic Party (LDP),a good number of Kansai
business participants nevertheless expressed clearly their
dissatisfaction with the current political stalemate and
lack of leadership in these troubled times. Frequent
characterization of this year's general elections as a
"change" or "choice" election may bode ill for the LDP. End
Summary.

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Disruption
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2. (U) "Panasonic Annual Loss $4 Billion; 15,000 Jobs Cut"
-- this was the headline that greeted participants
attending the 2009 annual meeting ("zaikai") of Kansai area
business groups, including Kankeiren (the Kansai Economic
Federation),the Keizai Doyukai (Japan Association of
Corporate Executives) chapters and Chambers of Commerce and
Industry from Osaka, Kobe, and Kyoto. Panasonic's unhappy
situation was emblematic of the broader gloom that hung
over this year's meeting. In his opening remarks,
Kankeiren Chairman (and Sumitomo Metals President)
Shimozuma Hiroshi noted the severity of the challenges
confronting Japanese businesses; the financial crisis that
has spread globally, and the collapse of broad consumption
in America that has led to huge losses for a substantial
number of the export manufacturing enterprises represented
at the meeting. In the seven break-out sessions, these
themes were reiterated in various forms by different
business leaders.

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What Is to Be Done?
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3. (U) While there was general consensus about the dire
nature of the present situation, there was substantial
divergence about how best to respond. "Japan must reduce
its export dependence on the U.S. market, and further
develop markets in Asia" proclaimed several speakers, but
there was disagreement on, for example, whether China was
more potential competitor than a good market. "Japan
should focus on eco-manufacturing of green goods,"
proclaimed some, but many of the same companies with
advanced solar panel, battery, and other "green"
technologies (such as Sharp, Panasonic, Sanyo, and others)
have incurred huge losses in their home electronics and
other business sectors, leading to concerns about the
sector's ability to continue the large scale investment
necessary to fully develop and manufacture "green" products.

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Jobs, Jobs, Jobs
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4. (U) There was sharp disagreement about what to do about
the growing numbers of unemployed, not merely among

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contract labor (Japan's version of a "flexible labor
force") but also among regular employees. Kyoto Chamber of
Commerce and Industry (KCCI) and Omron Corporation
President Tateishi Yoshio asserted that Kyoto enterprises,
such as his, do not pursue profits at any cost, and that as
a matter of social responsibility, companies should do all
they can to avoid layoffs, including job sharing, even
though this would likely dilute individual worker's pay
within a company. Representatives of companies which had
already instituted layoffs (including Panasonic and Sharp)
countered that they "restructured" only after careful
consideration of the number of workers that their payrolls
could carry in light of the sharp drop-off in sales.
Moreover, they countered with the view that work-sharing is
detrimental not only to the flexibility that enterprises
must maintain but also to the income and job performance of
retained workers.

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Punches and Jabs with Opposition Party
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5. (U) Opposition Democratic Party of Japan (DPJ) Diet
member (and Senior Advisor) Fujii Hirohisa urged passage of
legislation to convert all non-regular employees into
regular staff at companies, entitling them to greater
benefits in a layoff. This prompted Kankeiren Chairman
Shimozuma to strongly object, arguing that this would
unduly burden employers at a time of major economic stress.
The two also clashed on stimulus policies, with Fujii
arguing against government rebates to individuals and other
"wasteful" handouts and programs. Fujii claimed the
rebates are designed to boost the standing of Prime
Minister Aso and the ruling Liberal Democratic Party (LDP)
in the run-up to the general election, and added that a
boost to the consumption tax would surely follow to pay for
the short-term excess. Shimozuma countered that
infrastructure improvements, such as roads, one-time
government payments to taxpayers, and government
intervention to support corporate finance are absolutely
crucial at this point in time.

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"Choice" Election
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6. (SBU) The friction between Shimozuma and Fujii likely
reflects real discomfort that the Kansai business elites
feel with regard to the DPJ and its leader, Ozawa Ichiro.
However, the main political message that emerged from the
meeting was uniform dissatisfaction; dissatisfaction with
the stalemate brought about by the "twisted politics" of a
lower house controlled by the ruling party and an upper
house controlled by the opposition, and dissatisfaction
with weak leadership from Prime Minister Aso Taro. These
were the themes emphasized by Honma Masaaki, President of
the Kansai Institute for Social and Economic Research (the
in-house think tank of Kankeiren) and repeated by numerous
other participants during breaks and at the evening
reception. Moreover, one of the seven break-out sessions
was devoted to discussing the need for a major political
realignment after the upcoming elections (along with
descriptions of "Japan at a crossroads" and calls for a
"Heisei Restoration" that would reinvigorate politics).
Also gaining considerable currency was a call for a
"choice" ("sentaku") election, where partisan collections
of ideas would clash, and voters would decide the general
course for the nation.

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Concluding Comment
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7. (SBU) Ordinarily the annual "zaikai" is a staid affair,
but this year's was far different. Like it or not, global

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circumstances have brought about changes that have forced
difficult choices upon Kansai's elite businesses. While
the mood was somber, there was also a sense of urgency and
awareness of the need for action.

DONG