What’s Bad for Toyota Is Even Worse for Japan

When Akio Toyoda sits down for his grilling before U.S. lawmakers this week, he won’t just be representing his company, embattled Japanese carmaker Toyota. He’ll also be serving as the public face of a country in the throes of an unexpected national security crisis.

For Japan, it is not North Korean nuclear ambitions, the insurgency in Afghanistan, or even Chinese naval or cyber encroachments that keep bureaucrats up at night. Instead, it’s the global fallout from the tarnishing of Toyota, which is likely to reverberate beyond courthouses and corporate boardrooms.

Less than a decade ago, Toyota threw down the gauntlet when it sought to become the world’s top carmaker, cornering 15 percent of global market share. It soon surpassed General Motors, but along the way Toyota lost sight of the rigorous quality control that had become its trademark. The number of expert engineers could not keep pace with the number of cars, and pressures to reduce costs meant sacrificing testing. Meanwhile, a single-minded focus on expansion led to a flaccid corporate network, unable to gather timely information from all quarters to forestall emerging dangers — leading to today’s situation, in which the company has been forced to recall thousands of vehicles due to alarming reports of faulty accelerators and brakes, at a cost that will likely run into the billions.

So if the Toyota debacle is a national security debacle, and not just a story about corporate overreach, what are its lessons for entire countries?

First, you are your reputation, even in international politics. A blow to Toyota, now a national symbol of Japan, is a blow to the solar plexus of Japan’s national image. The Toyota Way is a Japanese and W. Edwards Deming success story facing a precipitous fall from grace. When an internationally revered name such as Toyota loses its luster, how does that affect the perception of Japanese power? No one is sure, but it is remarkable how senior government officials in Tokyo I’ve spoken with worry about the crisis’s knock-on effects. The Japanese tied their postwar comeback to the U.S. security umbrella and viewed national security and industrial policy as a package. Building from the ground up, Toyota at once embodied the success of this national strategy and became the symbol of Japan’s unbreakable postwar bond with the United States.

The scandal’s timing reinforces the image of a weakened Japan, reeling from tough economic times and contending with the rapid rise of its regional neighbor and traditional rival, China. We shouldn’t make too much of Toyota’s troubles — the company retains unbeatable process innovation and an enviable lineup of popular models — but it’s striking how fast and how far Toyota’s reputation has sunk in such a short time. And given Toyota’s place of pride in recent Japanese history, it’s hard to imagine this affair won’t sow doubts among the Japanese about their role among rising Asian powers.

Similarly, the United States, whose power in the world has suffered in recent years in the wake of the financial crisis and revelations about corrupt Wall Street executives, has been trying to regain its global stature as it supports greater multilateralism. Meanwhile, China, which grew more than 8 percent last year and is projected to exceed that in 2010, is increasingly assertive, whether at the Copenhagen climate-change talks in December, in the Davos economic forum in January, or in opposing harsher sanctions against Iran now. You are your reputation indeed.

Second, "soft power" is hard power, but particularly for Japan: The relative importance of Japan’s economic power to its national power means that Toyota’s crisis likewise has disproportionate potential to undercut its global influence. In advancing the "flying geese" economic model of development, which envisioned Japan as a regional leader heading a flock of Asian economies toward prosperity, Japan became the model of the modern civil power. Then the "lost decade" of wrenching economic recession in the 1990s followed by the crushing global slowdown in 2008 served to showcase the economic problems of an aging miracle. Strapped with social welfare costs that would choke most countries, Japan is desperate to return to even anemic growth (though the most recent quarterly figures are promising). For many Japanese, Toyota’s crisis serves to further highlight the fragility of Japan’s current position: If your soft power dissipates, it leaves you feeling very vulnerable indeed.

But globalization cuts both ways. Although Toyota faces a massive challenge, the automaker has a vast following. It will survive. Toyota is a sought-after employer in the United States. It is little wonder that four U.S. governors of states with Toyota plants rapidly came to the defense of the Japanese automotive giant. Tapping into this reservoir of trust can be the elixir for recovery. Remember that Tylenol, which suffered an enormous hit to its image in the 1980s when its product was maliciously contaminated with cyanide, soon restored its reputation. The outsized Toyota mystique may be gone, but this is a company that got to where it is by planning in decades, not months or days. If there is one company in the world that can bear down, dig in, and fix this over time, it is Toyota. The upcoming congressional hearings may be painful in Japan, but Toyota will make good cars and the United States and Japan will soon enough focus on matters more pressing than sticky accelerators.