COVER STORY • 9Management that Embodies
Sophisticated Rules & Democracy
as Keys to Economic Security

By Toshifumi Kokubun

The Long Cold War: the Grand Strategy Japan Must
PursueMany business leaders look doubtful when I tell them that the“cold war” between the United States and China will be with us for
30 years or more. But they do not realize that a long cold war works
to the benefit of Japan and more broadly the world. Little do theyrealize that a peaceful environment is actually provided by a cold war
that does not metamorphose into hot, kinetic warfare.
The risk of war rises when the balance of power deteriorates
rapidly. When the balance between competing forces suffers aserious upset when not only the parties to the conflict but thesurrounding states also are unprepared for the newly emerging
reality, the resulting disruption while a new order is yet to emerge
will be seized as an opportunity by forces that seek to change thestatus quo.
We must understand that the pressure points for efforts to preventa cold war and for efforts once it occurs are completely different.
People who hoped that a cold war between the US and China would
not break out tend to hope for an early conclusion because they are
driven by the desire to calm the waters and put a quick end to thesituation. But that only invites the rapid escalation of tensions,leading to the worst of outcomes.
Therefore, Japan should adopt as its grand strategy the
prolongation of the US-China cold war, using its weight as the thirdlargest national economy to bring an end to it in a peaceful manner.
That is the grand strategy that must be shared between the Japanese
government and Japanese businesses. The government shouldincorporate it into its economic security strategy and businesses
should use it a premise for their management strategies as a newsocial responsibility of theirs.
The assumption here is that the US and China, as the parties to theconflict, compete to come up with innovative policy initiatives insuccession with no intention of prolonging the cold war. The
Japanese government and businesses must have the strategicinterpretative capacity to drive policy in a direction that helps prolong
the cold war and the applicative capacity to incorporate this in theircorporate behavior.
It is not easy, however, when incorporating new corporate
behavior at the global frontlines of Japanese businesses, to promote
new investment and reform operations with the sole purpose of
responding to security needs. The institutional mindset of Japanese
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AuthorToshifumi Kokubun

businesses, who have long maintained a distance from security
policy, will surely generate factions that oppose this or urge caution,
making it difficult to produce a consensus among them. One
effective way to break through this resistance is to apply this throughtrending management methods aimed at enhancing business results.
Businesses should look out for factors that help prolong the cold war
in the new management methods that are being spawned and use
them for the twofold purpose of prolonging the cold war andimproving business results. In other words, pursue dual intentions inmanagement methods, much like the pursuit of dual use withtechnology.

Rulemaking from a Strategic Interpretative
Capacity Perspective
Slowing down China’s growth secured by unfair means is an
example of “strategic interpretative capacity” that was started by theadministration of President Donald Trump and has been maintained
under the administration of his successor Joe Biden. Maintaining
restrictions on US exports related to newly emerging technologies toChina and beefing up the Committee on Foreign Investment in the US
are aimed at preventing technology development that is not based onhealthy competition and instead utilizes such means as cyberattacks
and forced labor and slowing down the speed of China’s
technological catchup. The conflict will not escalate into a hot war as
long as the US believes that it maintains a certain level oftechnological superiority, so it helps to prolong the cold war when
Japan aligns with the US in strengthening its own control over
information on emerging technologies.
For Japan to effectively exercise its strategic interpretative
capacity, it is important to understand that the form of competition intechnological development in the US-China cold war is completely
different from what it was in the US-USSR cold war. During the
US-Soviet Union conflict, the competition took place in an unusualenvironment of limited scope, a war zone where walled-off military
and aerospace industries worked to meet military requirements. The
US-China cold war, by contrast, is a competition in which the generalpublic and ordinary businesses are corralled as customers. The
massive data accumulated from this customer base is used todevelop technology, and the goods and services produced as a result
are distributed broadly and deeply into society at large andweaponized. This competition requires a “process to corral (thehttps://www.jef.or.jp/journal/

general public and businesses) as customers in the general market”.
Since a business cannot acquire massive volumes of data unless it
satisfies people’s needs and secures a position for itself in themarket as a platform for indispensable access, it is essential to win
the intercorporate battle for customers.
What does this mean? Unless the government has the will toproactively control the competition environment and continuallyremakes and reshapes the institutional framework, businesses will
emerge that swiftly come to dominate the marketplace throughoverwhelmingly low-price competition backed by freeware
distribution and government subsidies. When a specific businessacquires excessive dominance over its market, the development of
its technology is accelerated, creating the risk of the technology
being converted to military use and upsetting the balance of power.
At the same time, governments may weaponize businesses that
dominate markets and put them to wrongful use, destabilizing
society through clandestine efforts to influence and divide,
intentional malfunctions, and the like. Rapid deterioration of national
power as domestic order collapses could also push the US-China
cold war towards a swift, violent conclusion. The US-China cold war
requires the strategic interpretative capacity to identify as a security
threat the emergence of businesses that dominate the market to thepoint where they have too much influence on society in general.
This means that it is useful to manage competition to decelerate
the pace of market dominance by specific businesses by continuallyremaking the rules that govern the fight over customers in themarketplace with strategic intent to make them more complex anddifficult. Continuously remaking the rules and repeatedly destroying
monopolies should be interpreted as the prolongation of the cold
war.
Forced labor is one issue where this policy is relevant. It creates
the risk of businesses using labor unfairly to conduct low-cost
production, distort healthy price competition, dominate the market at
unreasonably low prices, and rapidly destroy the balance of power.
Human rights due diligence over supply chains is a rule aimed at
avoiding this risk. It forces businesses to transition to “moresophisticated management” that incorporates the cost of
establishing and operating institutional frameworks to exercise due
diligence and to diversify areas of investment. Market domination
decelerates as a result.
Anti-trust law, which is under review in the US, also helps toprolong the cold war. The purpose of anti-trust law has been to stopbusinesses from using their dominant position to “harm theconsumer”. However, the argument that global technology
companies should be dismantled turns on the “social disbenefits” ofthe harm inflicted on democracy as their market dominance is used
to distribute fake news and conduct influence campaigns eventhough their products may be free of charge and convenient for theirusers. In an innovative twist, the scope of the disbenefits of market
domination has been expanded from consumers to society as awhole.
China also appears to be aware of this risk. In 2021, the Chinese
government suspended the Ant Group’s IPO and ordered its
reorganization as a financial holding company, conducted antimonopoly investigations against DiDi, Meituan, and other platformbusinesses, and required mandatory government examination of any
Chinese corporation with personal information on more than
1,000,000 individuals before public listing overseas. What does all
this mean? That as powerful as the Chinese Communist Party may
be, its influence no longer reaches into the details of corporations
that have come to dominate markets, so the Chinese government has
begun to develop rules that eliminate the risks generated by theoligopolies before they become a threat to sovereign authority.

Managing Competition by Developing Rules that
Delay Market DominanceJapanese businesses must understand that prolonging the
US-China cold war is the grand strategy for Japan and that theirgreatest social responsibility is to link their corporate strategies tosupport it. In their engagement with the creation of rules todecelerate the rapid concentration of market shares or to dismantle
oligopolies, businesses must have a deep understanding of theintentions underlying the security strategy, take a positive view ofrules that force change, and turn them into an opportunity.
For example, the US and China have placed climate change policy
as an area for cooperation; Japanese businesses should be able tolead rulemaking here to prolong the cold war. Although CO2 currently
dominates the public debate, declining groundwater resources havealso become a serious social problem. Adding a mechanism to offset
water consumed in the supply chain helps prolong the cold war in
the sense that it increases the matter for which sophisticated rules
must be developed.
There are many ways in which the rules regarding water can be
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enhanced: increasing the ratio of recycled wastewater, mandating therecovery of water equal in amount to the water consumed by storing
rainwater, and allowing the manufacture of products that requirelarge amounts of water to be produced only in locations where there
are sufficient water reserves, to name a few. Specific action bybusinesses to help prolong the cold war means coming up with theirown proposals for rules and actively advocating them instead ofleaving these initiatives in the hands of governments.
The European Union is moving forward on the circular economy
path. Already, Germany has limited public procurement of
information and communication technology (ICT) equipment anddevices to those using 90% or more recycled plastic, while France
has begun levying fines on wrapping other than recycled plastic.
Japanese businesses may see the EU’s “green” rules as abothersome cost, but they should reposition this as rulemaking that
prolongs the cold war and adapt proactively to those rules andspread them worldwide.
If your company is an industry leader, it should take its
sophisticated efforts to the public as voluntary rules and encourage
competitors to follow suit. It should also be useful for industries toadopt prolonging the cold war as an area for cooperation, consider
new voluntary rules together, and set up an institutional framework
to push their adoption worldwide. Rulemaking should cover supply
chains as well, obviously. Efforts should be upgraded, and only the
suppliers that undertake them should be part of supply chains.

Purpose-Driven Management
Another example of dual intention that I would like to take up is
purpose-driven management, a newly trending management methodthat has been drawing attention in recent years. Businesses are
beginning to adopt it to nurture innovation-generating creativity anddevelop organizations that continuously attract top talent.
Specifically, this management method enhances the independence
and creativity of individual employee by encouraging dialogue within
the company that links the significance and objective of the tasks
assigned to each employee to the purpose of their lives.
Another way of understanding this is as the liberalization anddemocratization of the organization management process. Now,business management theory has evolved by absorbing strategy andefficiency from research on war and military organizations. This is
the reason why, even in liberal democracies, a business is organized
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by surprisingly authoritarian principles. Owner-run businesses are
particularly likely to practice top-down management under powerful,commander-in-chief leadership.
While businesses tend to take an authoritarian approach in theirorganization management, purpose-driven management emphasizes
the values of the individual by taking the intentions and feelings ofthe employees all the way down to the lowest levels. This makes thereflection of a wide range of opinions on management inevitable andliberal and democratic debate unavoidable. In other words, when aglobal company employs purpose-driven management in thebusiness activities at all its bases under authoritarian and democratic
regimes alike, it is seeding democratization movements everywhere.
Sustaining democracy has become so much of a challenge
worldwide that one proposal in security circles prioritizes preventing
democracies from sliding back into authoritarianism over increasing
the number of democracies. In this context, it will be effective forJapanese businesses to undertake purpose-driven management withthe dual intention of helping to stop backsliding in democracies andaccumulating democratic organization management experience
under authoritarian regimes.
My long years of experience as an officer in global companies tellme that in seeking to achieve a management objective in an
organization that includes people in an authoritarian state, there is atendency to assign someone to a high-level, powerful position andhave everyone obey that person, the assumption here being thatswift decision-making is for the best. Decision-making in democratic
operations requires time. So, in order to make such practices firmly
embedded in society, it is essential to increase the number of people
who have experience in a process that comes across as slow andinefficient.

Developing Human Capital Capable of Avoiding
Conflict Escalation
Human capital development is another case with dual-intention
potential. On the corporate frontlines, employees are transferred
between democracies and authoritarian states as a matter of course.
Meanwhile, businesses have come to invest heavily of late in humancapital with the aim of achieving diversity and inclusion, or D&I for
short. D&I is a management method that accepts diversity innationality, values, gender, and culture and turns the diversity into astrength for the organization. It will be useful to develop humancapital with the understanding that promoting D&I leads to more
people in your business who accept mutual differences and coexist
without increasing tension in two different political regimes,
democratic and authoritarian.
Achieving D&I requires the upgrading of basic abilities that arenecessary worldwide. It must be combined with training to eliminate
unconscious bias. It is essentially the development of human capitalthat seek real, fundamental causes, do their own thinking based on
facts instead of being overwhelmed by prevailing views andauthority, and draw conclusions rationally. Developing human capital
capable of believing in the possibility that we can understand eachother even if we hold different views, capable of respecting others
and accepting diversity. This may seem at first glance to be selfevident, but it is the outcome that a well-known Japanese auto
manufacturer always seeks in constructing its human capitaldevelopment programs. Moreover, this company tells its employees
not to limit this way of thinking and attitude to the company but tospread it more broadly to other stakeholders as well.
In the US alone, wracked by division, Japanese businesses
employed 860,000 people as of 2016, second only to the British
contribution (JETRO Regional Analysis Report, Jan. 31, 2019). If
Japanese businesses can develop such human capital at the global
level and have their business partners follow suit, democracies will
have more citizens who are capable of independent, rational thinking.
This will help stem the tide of fake news and populism.
In authoritarian states, when more citizens become capable ofindependent, rational thinking, we could hope that expectations
towards the regime can be maintained at a reasonable level, making
it unnecessary for it to distract public attention at home with hardline
diplomacy. Learning the value of democratic operations within thebusiness may arrest their devotion to the authoritarian regime anddeter it from becoming further radicalized or running amok. It will beeffective for Japanese businesses to interpret the massive global
workforce that they command as the third-largest economy in theworld as assets for prolonging the cold war and act accordingly.
War has occurred between countries even as the economic bond
between them grew tighter. But it will be a historical first if global
businesses that rival national economies recognize the maintenanceof peace as their social responsibility and undertake the developmentof human capital to prevent cold war from turning into hot war. The
Japanese government and Japanese businesses should take the leadin this area with the objective of prolonging the cold war. In order forJapanese businesses to promote this, it will be necessary to increase
investment in developing the capability of their employees to levels
appropriate for strategic resource allocation and to incorporate this
into their respective corporate strategies.

Conclusion
It is essential for Japanese businesses to switch to a businessmodel geared to meeting social issues if they are to take the lead in
sophisticated rulemaking and to identify dual intention in new
management methods. Sophisticated rules require an aggressive
posture to meet social issues through market mechanisms.
Discovering dual intention requires the will to deconstruct the
US-China cold war from multiple perspectives into social issues thatsurround the business and recompose them into social issues forwhich new management methods can function as the means ofresolution. And business models and an ecosystem that transformssocial issues into profit opportunities must be established for this tohappen.
It is necessary for Japanese businesses to earn profits over thelong haul while playing a role in prolonging the cold war between the
US and China. They should develop sophisticated rules, spread themworldwide, and continuously amend them so that the cost of
securing new customers rises and more time and resources are
devoted to the management reforms necessary to adapt to the rules.
In addition, they should look at new management methods that are
drawing attention to identify factors that contribute to prolonging thecold war. When adopting those methods, they must aim at
prolonging the cold war in addition to improving business results.
Toshifumi Kokubun is a project professor of Tamai Lab., Economic Security
Research Program at the Research Center for Advanced Science andTechnology of the University of Tokyo, and professor at Graduate Tama
University and director of the Center for Rule-Making Strategies at Tama
University. He holds a Master’s degree in Public Administration from the
Graduate School of Public Management at Waseda University, and has held
numerous positions as a special policy adviser to the Japanese government andLiberal Democratic Party as an expert on Economic Security.

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