Akimoto Sakie (Jodie), President, Saki Corporation
Hasegawa Yasuchika, President, Takeda Pharmaceutical Co. and Chairman, Japan Association of Corporate Executives (Keizai Doyukai)
Hashimoto Kazuhito, Professor, Tokyo University
Mikitani Hiroshi, President and Founder, Rakuten
Niinami Takeshi, President, Lawson
Sakakibara Toshiyuki, President, Toray Group
Sakane Masahiro, Chairman, Komatsu Group
Sato Yasuhiro, President, Mizuho Financial Group
Takenaka Heizo, Professor, Keio University
Credit where credit is due: one could not pick a more photogenic and knowledgeable set of representatives of Japan's management and business development worlds (applied chemist Hashimoto, one of the two academics on the council, is a poster boy of academic-industrial cooperation).
Which is the first problem.
All of these folks have day jobs running successful companies or academic enterprises. Hasegawa, Amaterasu bless him, has two day jobs.
Which means the amount of time and attention these persons can consecrate to the Industrial Competitiveness Council is minuscule.
Unfortunately, the amount of energy and effort needed to come up with a feasible action plan for improving the competitiveness of Japanese business would be immense. If this were a real, functional council on competitiveness, membership in the council would not just be one's day job, it would be one's life.
The Council had its first meeting yesterday. (Link - J)
Which is the second problem.
The Abe administration's economic revival plan is a trident with three prongs. The first is fiscal stimulus, either in a single burst or a steady program (Abe has unsurprisingly been silent about multi-year stimulus since the election). This debt-fueled kick start to the economy is geared to/needed to (there is a healthy debate as to the necessity) revive Japan's animal spirits.
The second is an ultra-accommodative monetary policy, driving down the value of the yen and savings and supporting mild (2%) inflation.
The third prong is supposed to be restructuring the economy. Since economic restructuring has an bad reputation, risutora being the euphemism for being laid off from work, the effort has been rebranded as economic revitalization, which sounds so much more hopeful.
Strangely, while the Abe government has needed no advice on how to structure a fiscal stimulus package (Liberal Democratic Party-led governments having done so well in this department in the past) or how to work with the Bank of Japan on monetary policy ("Push outgoing Bank Governor Shirakawa Masaaki into a corner? Nailed it!") it seems, on the subject of changing the way Japanese government and business do business, to be in need of wise counsel, delivered at a measured pace.
Could this need for advice, and not immediately, be because
Unpopular?
Hard?
To put it another way -- if you wanted to have a credible revival economic plan, would you not want to have the bitter and the sweet together so as to make the whole more palatable, rather do than what the Abe government is doing, which is tossing out the honey pell-mell whilst retaining the bitter pill for a council of wisemen and wisewomen to ponder over?
So let us say it together: the Industrial Competitiveness Council is a public relations stunt.
Takenaka will stick around until such time as the Abe government makes its choice for the next Bank of Japan Governor. He will then leave, either to take up the governorship or to spend his free moments more wisely (Takenaka should open a training school on how to shrug off unprofitable activities without a shred of remorse). Other members of the council will continue to attend meetings but only to tell shaggy dog tales.
Which is possibly the point of the whole exercise.
Japan, unlike the US, has, on-balance I guess, a reasonably not-horrible track record on providing public housing, and if I were running things I'd look to eviscerating ground rents in the crowded cities by aggressively increasing the supply of public housing.
ReplyDeleteWhat survives as the kodan option ("Urban Renaissance") is still rather high-cost if you ask me . . .
Knock rents in half everywhere by increasing the supply of good housing and more people would have a lot more money to spend on actual quality-of-life stuff.
That would be the best stimulus. Then again, with Japan's population falling 20%+ by 2050, depopulation will be a driver towards less unaffordable housing, too.
But that depopulation is going to be a centripetal dynamic, the cities pulling population from the outlying hills and dales, so Japan could still use a lot new housing stock anyway.
Making it more energy efficient would be a big plus, too!
I've also read that education is an immense burden on families . . .
http://blog.japantimes.co.jp/yen-for-living/cost-of-education-drag-on-japanes-economy/
I'm amazed that so much of economics talk just ignores "kitchen table" issues like housing rents and other major life costs.
At least Japan's health care system is largely sorted out, cost-wise at least, with a per-capita cost comfortably below the OECD median.
Which makes me sad.
ReplyDeleteOr how about ending the double taxation of dividends?
ReplyDeleteExample. Lets say I have a small
company. Any profits I make are taxed at 40%. From the remainder I decide to pay dividends to the investors (myself and other family). Those profits are then taxed AGAIN as income. So the effective tax grab on company generated profits is well over 50%.
So as a business owner I have a strong incentive to rort the tax system by claiming dodgy deductions.
Smarter governments than Japan possesses sorted out that anomaly a long time ago by introducing "tax paid credits" for recipients of dividend income.
I completely disagree with the idea that bringing together captains of industry to advise the government is a vain and hopeless exercise. Indeed, just the opposite - business should be consulted more often. I wouldn't expect this blogger to understand, but in fact governments in general, and the Japanese government (METI, other bureaucrats, the LDP et al) in particular have been plain wrong about addressing this problem for the past couple lost decades. Bringing together the chiefs of modern Japanese success stories (ie Rakuten and Lawson) is a step in the right direction.
ReplyDeleteAs for the comment about real estate prices, I agree that high cost of real estate does increase the cost structure and therefore reduces competitiveness of Japanese corporates. As someone in the real estate industry, there is ever constant supply going up, and indeed rents and land values have never recovered to anywhere close the historical bubble values. There is now plenty of affordable real estate OUTSIDE Tokyo.
As for further real estate devaluation - its a double-edged sword - there is plenty of Japanese capital invested in real estate..
^ I wish rich people would pay me to post comments on blogs, too.
ReplyDelete"So the effective tax grab on company generated profits is well over 50%."
http://research.stlouisfed.org/fred2/series/CP/
Now, Japan is probably nothing like that. Probably.
Japan does have a 28% tax-to-GDP burden, somewhat low compared to OECD and only half what is necessary to pay for the cost of government.
It's not that government is spending all that much, either. At ¥90T, or $1T, it's 1/3 what the US is spending at the Federal level.
Per-capita, it's $8,000, compared to the US's $12,000.
Japan doesn't have half the US's coming retirement burden, either. Japan's baby boom was over in 1949, and they've had little added immigration juicing the retirement numbers.
The US baby boom was only getting going in 1955, peaking in 1957 and not tailing off until 1964.
Complaining about taxes is rather missing the point.
adam -
ReplyDeleteYou write:
" I wouldn't expect this blogger to understand..."
I would suggest that you nevertheless try, despite your expectations of failure, to help me understand.
As for your contentions,
1) The concept of the Government of Japan and the Liberal Democratic Party having insufficient exposure toward the opinions of successful business leaders is a novel one.
2)Bringing together modern success stories is one thing. Listening to them is quite another.
"As for further real estate devaluation - its a double-edged sword - there is plenty of Japanese capital invested in real estate.."
ReplyDeleteindeed, and that's the real cause of the "lost decade(s)".
total malinvestment in speculators chasing up land values, borrowing against these inflated valuations to bid up other asset valuations, supporting a new extravagance of ostentatious prosperity while not focusing on actual capital output, just cashing in bubble money.
Then (according to what I read from Christopher Wood's book) the MOF slammed the brakes on RE lending, precipitating the ensuing hard-landing in prices.
But even with all that, Japan has actually done a pretty good job keeping their trade surplus going, until their nuclear energy sector literally blew up in 2011.
2011-2012 came in at a ¥9.5T trade deficit, or $100B. Japan has the positive NIIP ($3.3T) to mitigate any capital loss.
And it needs to be understood that during Japan's lost decades, its NIIP went from $550B to $3T+.
The US's NIIP went from -$230B to -$2.5T and is falling at $500B/yr.
I see economics through two lenses, scarcity rents in land and other natural resources, and trade flows between locales, nations, and currency blocs.
Thanks to its devalued yen, and I guess today's competitors (China & Korea) being unstable basket cases, Japan was making in a killing in the trade game, 1965-1985. Then the yen went to parity, China got its act together, and ROK spun up its industrial sector too.
But I like Japan's macro picture better than the US's. As I said above, their baby boom bum rush into retirement is nearing completion, while the US's is just getting started. Japan's $100B trade deficit over 2011-2012 -- $400/capita per year compares favorably to the US's $1800/yr trade imbalance.
Japan's internal trade environment is no doubt still sclerotic and captured by quasi-crooks, but so is the US's if corporate profits (linked above) are anything to go by.
http://i.imgur.com/69syYbt.png is wikipedia's list of NIIP, sorted by % GDP.
These are the positive NIIP national economies. Whatever its faults, failings, and foibles, Japan did extremely well (economically) this past century!
Socially, I'd like to see it become more like Norway/Denmark/Sweden, but the DPJ botched that endeavor pretty bad I guess.
Go Abe! Aside from all of the socialism, the secret of the nordic successes is their weak currencies, LOL.
MTC - although collaboration between J govt, LDP and big business is not new, it has historically been centered around manufacturing and finance (and not to step too far from the conversation, led to excessive arrogance in the bureaucracy that directly led to the bubble) which was fit for a certain time but not the 21st century. Instead, the assembled team you belittle is an acceptable cross-section of Japan Inc in the 21st century - an e-commerce giant, convenience store operator, advanced chemistry and materials, pharmaceuticals, mixed in with finance, academics and a couple others.
ReplyDeleteYou may have a point in your cynical comment "listening to them is quite another", but you have to start somewhere. Doing so in a public forum is a modern and transparent method to circulate and populize ideas which should happen. This being Japan, I do not expect to see the elevation of a savvy entrepreneur such as Todd Park, formerly of Athena Health, but every modern government should be incorporating ideas from successful businesses and business people.
Now, to ask you a question, what do you think should be the appropriate method to formulate, promote and implement a "credible revival economic plan"? To group a bunch of bureacrats together and force through measures behind closed doors? as has traditionally happened in Japan to shocking consequence. No thank you. While the Industrial Competitiveness Council may not achieve breakthroughs, and while it may be categorized as a "stunt," I favor this process. At the least, the general public will be better informed.
adam - I'm not sure if you and I read the same post. I thought MTC praised the people extensively. He just said that the individuals are so busy, they don't have the time to really carry out the task they've been given.
ReplyDeleteadam -
ReplyDeleteRegarding the makeup of the council, you and I are in agreement. The non-government council members would be a great bunch of folks to have around to offer wise counsel. I would disagree with your use of the word excessive in "excessive arrogance" -- as all arrogance is excessive.
The concept that government should learn from business has its limitations. Government has to learn from businessmen and businesswomen which of its policies are damaging to the conduct of business. However, that is as far as the lesson should go, as government exists in large part to provide the services private enterprise cannot provide either effectively, quickly, comprehensively or at all.
As to the formulation of a credible economic revival plan, it would require the participation of successful businesspersons from the outset, with their participation seen as crucial.
However, as the members of the Industrial Competitiveness Council entered the Prime Minister’s Residence for their first meeting this week, none of the non-government members of the council were smiling. Reporting in the Nikkei confirms that once the press left the room, the non-government members complained about the government's strategic growth proposals, saying that they were heavy-handed attempts to force development in specific industries.
Glass half-full view of this first meeting: "Great, a council where members of the private sector are free to offer sharp and considered advice."
Glass half-empty view: "This was a first meeting and the atmosphere was acrimonious? The government presented plans to the non-government members which the non-government members proceeded to pick apart? Where was the advance preparation?"
As I noted in my post, all the council members are extremely busy, top-level executives and academics. The agendas of their meetings are bashed out by staff members in advance, leaving the big guns, when they meet, to reaffirm the result and discuss broader strategic issues and/or small technical points.