Overview of the Forum (Saturday, August 1, 2009)

Following the opening address given by Mr. Satoshi Iue (Representative Director of the Asia Pacific Forum, Awaji Conference Japan), four lecturers gave keynote proposals at the forum chaired by Professor Shigeyuki Abe, Faculty of Policy Studies, Doshisha University.

Mr. Sadahiro Sugita (visiting professor at Waseda University and former Deputy Director General, Trade and Economic Cooperation Bureau, Ministry of Economy, Trade and Industry) was the first lecturer. He said that the amount of foreign currency reserves increased in Asia as a result of export-oriented industrial development due to the low evaluation of local currencies caused by restrictions on bank loans and foreign capital after the Asian currency crisis of 1997. He explained that the amount of savings increased because there was no increase in domestic demand, the fund of which flowed to US Treasury Bonds and subprime loans. In view of the situation, he stated that structural reform is essential, which must include the solution of short-term financial for trade and mid and long-term structural problems and a correction to the flow of the fund, and explained the framework for doubling Asian economic growth proposed by Japanese Government as follows:

First of all, it is essential to make a steady financial flow for trade and investment in the short-term, and then each country should promote the reform of its domestic infrastructures including medical, welfare, and agricultural infrastructures. It is essential to discuss common policies of the ASEAN+3 through the Economic Research Institute for ASEAN and East Asia (ERIA) and promote human resource development. Asia as an open development center should contribute to the world with the promotion of regional cooperation through discussions on the integration of the economies and the construction of a financial capital market in the movement of the ASEAN+3 or ASEAN+6. In the mid- and long-term, a general infrastructure plan should be made in Asia under the cooperation between the public and private sectors and the foundation of an Asian infrastructural fund is desired because bond and security fund-raising systems will become important in the future.

Mr. Tadao Kagono, Professor at the Graduate School of Business Administration, Kobe University, gave a lecture next as follows:

An anecdote is told about Mr. Konosuke Matsushita. At the time of an economic crisis about 100 years ago, the sales of Matsushita Electric were reduced to half. Konosuke's brother-in-law Mr. Toshio Iue visited Konosuke, who was hospitalized then, and consulted him about halving the number of employees. It is said that Konosuke told Toshio to halve the production work of the employees and the surplus energy should be put into the sale of products. It is a shame of companies nowadays to reduce the number of employees first of all. There was an ominous prediction of Michel Albert, i.e., Anglo-American financial capitalism would conflict with nation-protecting Rhine capitalism after the collapse of the Berlin Wall in 1989, and financial capitalism would win. Albert concluded that human beings were so mindless that most of them would select the life of the grasshopper when they hear The Fable of the Ant and the Grasshopper. It is sure that financial capitalism makes money easier than manufacturing. Although this was not conspicuous in Japan compared with Europe, many companies proceeded to the reform of their companies in the direction of financial capitalism. The Japanese Securities and Exchange Law was revised into the Financial Instruments and Exchange Law, which the companies of Japan had no choice but to observe. As a result, many companies became desperate to raise profit each quarter and mindlessly forced a cutback in personnel. Furthermore, the mark-to-market accounting system of Japan smashed up companies that should not have gone bankrupt. Companies under the control of their stockholders who did not understand the management of the companies adversely affected the performance of the companies and the stock prices stayed stagnant. Toyota had been once demoted by an American rating agency because Toyota maintained a lifetime employment system. Afterwards, however, the stock price of Toyota rose rapidly, indicating that finance and corporate management are different from each other logically. The United States failed in financial capitalism. Japan and Germany followed suit and had a bitter experience. Breaking away from the principle of financial capital is necessary.

Mr. Toshihiko Hayashi (Professor of Economics at the Open University of Japan and Director of Research at the Hyogo Earthquake Memorial 21st Century Research Institute) said that he would like to present a problem from a historical viewpoint rather than talk about the economic crisis that occurred for the first time in 100 years. He explained the problem by looking back to the past 2000 years as follows:

Population has been increasing almost in proportion to an increase in GDP per capita for a period between AD 1 and 2000. As a result of regression analysis, a 1% increase in the population of Japan will mean a 1.78 increase in the GDP of Japan per capita. On the contrary, a 1%　decrease in the population means a 1.78% decrease in the GDP. According to the demographic estimate of the United Nations, the population of Japan will peak in 2005, and Japan will become a depopulating society and the population of Japan will drop below 100 million in 2050. If the population decreases by 30%, the GDP will drop by 50%. From the trend of demographic change, it is predicted that the GDP of Japan per capita will become half from now on. This means that the people of Japan must withstand the life level early in 1960's. Those who were born in and after 1989 will experience constrictive economy throughout their lives. It is questionable whether the country can survive.

There are some measures to tackle with this problem. The people of Japan should live long in order not to decrease the population of Japan with a birthrate increase by all means. Therefore, it is necessary to make changes in the houses and cities of Japan and the people's sense of values. Alternatively, Japan should raise its productivity per capita or accept immigrants. The term "immigrants" is not legally defined in Japan. Given that it was defined, however, Japan's readiness to accept immigrants would be still questionable. If I could say at the risk of criticism, it could be a survival way for Japan to merge with a country that has a large population, that is, Japan could survive by becoming a US state or a part of China.

Otherwise, Japan should aim at being a poor country but with happiness, in which case the happiness should not be measured on a GDP basis. I would like to leave the decision to the young generation in the 2050s.

Mr. Takeshi Fujii (Executive Advisor to Mizuho Corporate Bank, Ltd.) talked about domestic demand-led economic recovery. He explained that there are two standpoints when we think about domestic demand, one of which is sustainable growth considering the future and the other is the equivalence of the three contents of production, demand, and distribution. He also explained that a production structure to develop welfare and environmental goods are required according to the current demand structure of Japan, and introduced a Swedish example of a smooth shift to this production structure as follows:

Sweden as a welfare state is characterized by the public's extremely heavy burden. In 1960, Prime Minister Erlander parted from an American-type growth path and chose the way to the welfare state. The national burden rate at that time was approximately 25% to 26%, which was the same in level as present Japanese national burden rate. Then Sweden introduced value-added tax and took 20 years to increase the national burden rate to 50.9%. This tax increase, however, covered social security payment and educational expenses, that is, the tax increase was returned as services to the people of Sweden. This is an example of a welfare state.

There is no difference between Japan and Sweden in the expenditure ratio of public burdens for medical care expenses and pensions. Other welfare budgets of Sweden (e.g., nursing care, childcare, and unemployment compensation budges, in particular) are five times as high as those of Japan. A big budget is spent for family policies, such as environment maintenance to enable women to balance childcare with work in Sweden.

This effect is extremely clear. Swedish labor participation rate is approximately 80% for both male and female workers and dual-income households are common in Sweden. There is little difference in wage between men and women as well. Male workers as well as female workers leave their office at 6:00 in the evening to enjoy a close family atmosphere. The birthrate of a society like that of Japanese, where men work until late at night while women stay home, will continue falling down.

There is an argument that high burdens on a nation will hollow out the labor force of the country. Approximately 400,000 people's jobs were created in Sweden between 1965 and 2000, most of which are in the public fields of elderly care, health care, child welfare, and education, i.e., children's nurses, care workers, and teachers' jobs at which women are good. Japan should humbly see such examples of advanced welfare state and open up a way to a Japanese-type welfare society.

After the speeches, the participants were divided into subcommittee 1 (with the theme "The Global Economic Crisis and Asian Economies"), subcommittee 2 (with the theme "The Global Economic Crisis and Business Leadership"), and subcommittee 3 (with the theme "The Global Economic Crisis and Personal Lifestyles"), where active discussions were developed on each theme.

The moderator of each subcommittee reported the summary of the discussions at the subcommittee to the plenary session.

[Report from Moderator of Subcommittee 2: Professor Hideki Yoshihara]

The participants actively discussed the leadership of corporations in the global economic crisis, American financial capitalism, and industrial capitalism.

Almost all the members were critical of financial capitalism, American management, and stockholder sovereignty. When global-scale corporations compete like the Olympics in the global market, American financial capitalism will be superior to Japan's industrial capitalism. Therefore, the discussion did not reach a conclusion to find a way to Japanese management's success.

There was an opinion that Japanese multinational corporations, such as Toyota, Canon, and Komatsu, should continue industrial capitalism basically because they would lose everything if they changed themselves to American-type corporations. There was another opinion that Japanese corporations would be compelled to change themselves to American-type corporations at some level but comparatively small corporations can and should continue their Japanese-type management.

Manufacturing corporations can make profits from the operation and management of their plants and engineering technologies added with the management of the corporations with their business strategies. In other words, the profit rates of Japanese enterprises are lower than those of Western enterprises, because the factory operation and engineering technologies of Japanese enterprises excel those of Western enterprises but the management and business strategies of Japanese enterprises are their weak points.

[Report from Moderator of Subcommittee 3: Ms. Yoshiko Miyauchi]

The participants exchanged opinions about the influence of the present crisis on the people's daily life along with ideas of how to eliminate the influence and bring happiness to the people in the future.

Presently, young people cannot have dreams and they cannot see the way to a success if they challenge something new. Social flexibility will disappear if the excess concentration of population and industry in the Tokyo Metropolitan area, the poverty of education, and young people's indifference to culture and the arts continue. Furthermore, conventional problems awaiting solution, such as discrepancies in working conditions between male and female workers and gaps between cities and farm villages, have become worse, and the Japanese people suffer from a sense of stagnation.

In future, the development of measures to improve the quality of living, such as the betterment of care, education, and welfare, will be important. The promotion of decentralization is particularly important as a necessary condition. For the realization of sufficient welfare and education, the expression "burdens on the nation" should be changed to "money to create added value" and a clear vision for the result of the change should be indicated.

There are splendid brands possessed by Japanese enterprises, and they are trying to establish brands with advertising costs. Fundamentally, money should be spent for the happiness of the nation. Public investments are required for hospitals and schools as well as roads. In order to increase the population of Japan, the enhancement of hospital facilities is desired so that late childbearing will be possible with low risks.

The participants want to transmit the above message to politicians, government offices, and the world from Awaji.

[Report from Moderator of Subcommittee 1: Professor Shigeyuki Abe]

The participants discussed concrete measures for an expansion of domestic demand or Asian demand as the most interesting topic of the participants.

There were active discussions including discussions about setting a little high exchange rate for the stimulation of domestic demand and aiming at a Swedish-type economy for an expansion of domestic demand. Furthermore, income distribution is essential to the stimulation of domestic demand. Rich elderly people in Japan do not spend much money despite their assets. Therefore, the solution of problems in income distribution, unemployment, and irregular employment is as important as measures for social welfare. As for income distribution, a participant pointed out that we must not forget that Asia's savings rate in the family budget sector is not very high though its total savings rate is high.

There was an opinion that the dichotomization of secondary education and unmarried young people are more problematic than the declining number of births. There was a discussion about a social problem that women hesitate to get married when they consider that they must take care of their children, husbands, and parents because Japanese men do not help their wives with housework.

Mr. Bosworth explained that there are pros and cons to the government's bail-out measures for AIG and GM in the crisis of the United States. There was an opinion that the United States learned from "Too big to fail" and will not make a financial juggernaut in future. A participant provided ones opinion that it is one idea to have a rating agency with original evaluation standards in Asia because it became a problem that an American rating corporation gave a favorable evaluation of subprime loans.

All the participants further discussed in detail after the reports were made from the respective subcommittees. Mr. Makoto Iokibe, President of the National Defense Academy of Japan and Professor Emeritus of Kobe University, gave a summary and acknowledgements on behalf of the Board Committee.

Approximately 45 participants who attended the Forum gave their consent and approval, and the Forum was ended.