Awaji Conference Statement 2009

The memorable 10th Asia Pacific Forum, Awaji Conference Japan was held with the main theme “How to Survive the Global Economic Crisis: World Wisdom, Asian Wisdom and Japanese Wisdom”at the Awaji Yumebutai International Conference Center on July 31 and August 1, 2009. The conference featured enlightening presentations and lively discussions, the contents of which covered three topics based on the main theme, i.e., how to deal with the current world economic crisis, the wisdom of Asia, and the survival of Japan.

The current world economic crisis, a severity that might be expected only once in 100 years, seemed to have bottomed out earlier than expected, and people are hoping that the recovery is well under way. We cannot deny that one of the reasons for it is that society has been recalling the lessons of history in the 1930’s and putting them to good use. The major ones of the lessons still unforgotten are the evasion of the total collapse of financial systems with a quick injection of public funds, the prevention of a worldwide chain reaction of protectionism linked to the world’s economy, and the prevention of political bursts that are apt to occur in economical depression.

First, what standard did the United States use to inject public funds? The US government did not rescue all financial systems in danger of collapse. American International Group (AIG) was rescued because its bankruptcy would have too big a social impact while Lehman Brothers was not rescued. General Motors (GM) was rescued while Chrysler was not. As pointed out by Dr. Barry Bosworth, these coping strategies received unfavorable criticism in the United States but have been recognized inevitable, considering the size of the social impact.

Second, as for the avoidance of protectionism, the lessons in the past have been preventing the United States from enacting a law similar to the Smoot-Hawley Tariff. In fact, it was suggested in the G8 and G20 Summits that each country achieve an expansion of domestic demand without stopping the purchase of foreign products. In that sense, the current situation is significantly different from that in 1930’s. The collapse of the London Economic Conference in 1933 meant the abandoning of the framework of international cooperation, which symbolized the falling of the world’s economy into a slump with the Smoot Hawley Act. The framework of cooperation has been found to be effective this time.

The lessons of history have been still unforgotten in that sense and Professor Toshihiko Hayashi pointed out in his report a fact of which people is unconscious. That is, the United States under the Roosevelt administration once got on a recovery path in and after 1934, but slipped again in 1938 when a credit crunch was inadvertently made and resulted in a 10-year major depression. Similarly, a tax boost in 1997 stopped the resurrection of the economy of Japan in the 1990’s and resulted in the “lost decade.” When we think about it, the breath of the economy is still weak though the current world economic crisis seemed to have bottomed out as mentioned earlier. We must not forget that the economy of Japan could fall into a slump again if the economy is suffocated by a political folly.

Third, we should be careful about political bursts, which were not vigorously discussed though. The human tragedy of the Second World War resulted after Japan, Germany, and Italy set a trend toward militarism and totalitarianism in the 1930’s and the rest of the world let them militarily go into other countries. We must continue preventing political tyranny no matter how small in scale it is.

A worldwide financial system reform will be important in future. As pointed out by Dr. Bosworth, the subprime loan market already went broke. However, how can we reform the financial systems? A number of reform bills focusing on the ideal direction of financial products and the protection of consumers are now submitted in accordance with various opinions in the United States, and financial games that are very close to gambling are about to be suppressed. The United States can take only emergency sheltering measures to the aforementioned corporations that are too big to close. It is a problem that the United States let huge enterprises have everything on their ways. The United States is now thinking of Antitrust Law-like legal restrictions on corporations with huge market shares in order not to let them become too big. At the same time, a financial system reform is discussed worldwide in the G8 and G20 Summits. This must be discussed steadily.

The structure of the trade deficits of the United States versus the trade surplus of Asia and Middle East is not sustainable. The indication the necessity of trans-Pacific rebalancing is important. The United States should increase the Americans’ savings a little more and make an effort to increase exports while Asian countries should invigorate consumer spending and put more effort into the rising of domestic demand, or otherwise the structural deadlock in the world will worsen.

With every effort made, however, it will take three years at earliest to overcome the economic crisis. It is reasonable to guess that it will normally take five years but will require 10 years if proper measures are not taken and we may have to see that the economy encounters the second bottom. Should we have a recognition that we can change the critical times into an opportunity?

Dr. Chalongphob Sussangkarn pointed Asian wisdom. At the time of the East Asia economic crisis in1997, the International Monetary Fund (IMF) and the United States attributed the crisis to the particularity of Asia, such as the unsound crony capitalism of Asia or lack of governance. There were frequent voices that criticized the Asian economy system from the standpoint of Western models. This time, however, it was revealed that the American system has a big problem as well. Perfect systems do not exist in the world. Every system has dual nature of strength and weakness. Therefore, it is necessary for us to learn each other humbly individual economy and develop their own economic society respecting counterparts.

On the occasion of this crisis, Asian countries are busy with taking countermeasures not to be swept up by the “tsunami” originated from the United States. At the time of the East Asia economic crisis, the United States gave lectures as if it looked down on Asia. On the contrary, Asian countries do not have time to give condescending advice on the current American economic crisis. It is interesting that the East Asia economic crisis in 1997 accelerated the formation of a new framework for cooperation in Asia. Unfortunately, Japan’s proposal for an Asian Monetary Fund (AMF) was not accepted, but Japan offered great cooperation to Asia under the framework of the New Miyazawa Initiative. Furthermore, Japan played prominent roles in the financial cooperation frame of the Chiang Mai initiatives that can be compared to a bundle of bilateral relationships. Furthermore, Asia’s steps advanced toward the ASEAN Plus Three, a new East Asian community. Therefore, Asia was able to make a contribution in the crisis to the Chiang Mai Initiative Multilateralization (CMIM), a great international frame with bundles of cooperation pooled and shared, which Dr. Chalongphob Sussangkarn made an effort to establish.

It is worth noting that China’s domestic demand becomes powerful traction to allow China to make a good show in the world economic crisis. The idea of a Japan-Korea Free Trade Agreement (FTA) came to a deadlock. The FTA network of East Asia, however, is making continued progress with the ASEAN's conclusion of two more FTAs entered/signed with Korea and Japan. Japan, China, and Korea, which were appendices to the ASEAN Plus Three, started their own summit meeting last year. It is hoped that the cooperation frame will grow up in Northeast Asia. Dr. Chalongphob Sussangkarn said that we should not take a high-handed attitude to insist that it is the capitalism of Asia. He suggested that Asian countries should take a steady and positive attitude to make healthy arrangements based on PPP (three P’s), i.e., correct Paradigm, Prudence, and Pragmatism. This seems to be Asian wisdom that should be fostered in this crisis.

As for the survival of Japan, Professor Hideki Yoshihara advised that we should regard the crisis as an opportunity and accomplish what we cannot in usual times. Japan might experience a governing party change soon. By taking the opportunity of the governing party change, we hope that Japan could make a change that would be impossible in usual times. We could not promise with the overseas participants that Japan could definitely accomplish it but would like to see the change and make it better.

The comparison of two economy models were discussed, one is finance- and stockholder-centered capitalism of Britain and US type and the other is manufacturing-oriented capitalism of Japan and German type (Rhine capitalism). The criticism and distrust of finance- and stockholder-centered capitalism of Britain and US type were strongly felt in the Conference, which seemed to be natural in view of the current situation.

Financial capitalism of Britain and US type, however, will win intellectually. The financial capitalism has superiority in international competitiveness, however, no close analysis was made to find the reason. There is interpretation that Rhine capitalism, i.e., manufacturing-oriented capitalism is wholesome compared to financial capitalism, nevertheless, a phenomenon exists with that saying bad money drives out good. It was pointed out the profit rates of Japanese companies are so low that their performance is not competitive with British and American companies in the international market. Methods to solve this problem were discussed.

Leading companies participating in the expanding international industrial market, such as Toyota, Panasonic, and Canon, must fight to win the competition. This, however, does not mean that they should abandon their capitalism of industrial line type that they have cultivated by themselves. They should deal in the international market with their capitalism. According to Professor Yoshihara, the profit rate of a company is calculated from the technology of the company multiplied by its strategy or from the factories of the company multiplied by its management. Japanese companies have powerful technologies and factories, which are superior to those of foreign companies. As far as strategic and management aspects are concerned, overseas companies, such as American companies, have leadership. Guidelines born from the circumstance, however, should allow Japanese companies to utilize their strong points and demonstrate their technologies and production know-how. Presently, the entire world is trying hard to grope for a breakthrough in the solution of environmental problems. If Japanese companies can take a lead in new environmental or energy technologies, they may find a chance to make progress with the new technologies again like Japan’s economy in the 1970’s after the oil crisis which maintained Japan’s predominance in the 1980’s. In this respect, the possibility of the lithium battery was talked about.

While demonstrating the power of Japanese companies, they should reinforce their weak points by learning from others. In what respect is Japan reported number one in the book Japan as Number One, written by Professor Ezra Vogel, who won the Asia Pacific Culture Prize this time? The book does not say that Japan is superior to the United States and number one in every respect. The book, however, says that the Japanese are the best in the world as far as their willingness to learn from overseas and their splendid ability are concerned. The Japanese’ ability to learn is a strong point, with which Japan was modernized after the Meiji Restoration and has developed up to now since the end of World War II. With this strong point, Japanese companies are expected to learn strategic and management aspects to deal internationally.

At the same time, frontier area of Japan must be developed well. For example, Japan is facing aging society with a rapidly falling birthrate. In order to make arrangements for the forthcoming longevity society, former Ambassador to Sweden Takeshi Fujii introduced a Swedish model, which attracted attention. The injection of public funds to welfare and education will be indispensable. Why should we make arrangements for the aging society with a rapidly falling birthrate? In part, it is a very important common task for people living in this age to establish the security and safety of the longevity society, which implies a hope that the society can become a base of a birthrate increase. The construction of a Japanese-type aging society that will satisfy these dual purposes is desired.

Furthermore, the construction itself can create new types of domestic demand. To cope with the world economic crisis, each country must think of new types of domestic demand without falling into protectionism or thinking of only exporting commodities without importing anything. Establishing the demand of the longevity society of Japan by referring to the example of Sweden can be a meaningful draft proposal to Asian and other countries and may be a good model.

Japan is a small country with few natural resources, but has plentiful human resources. Japan was able to attain modernization and succeeded economically with human resources only. Therefore, the precious tradition of Japan is human capitalism. We may be proud of it. Professor Yoshihara, however, pointed out that the human capitalism of Japan tended to excludes women, elderly people, and foreigners. It is time we thought of it as including these groups and people.

An innovative-type leadership brought up in a non-mainstream frontier area came up in the discussion. President Yasuyuki Nambu, who has been leading local revitalization, strongly proposed the activation of an innovative-type leadership without giving up in a difficult situation. We should not necessarily demand frontiers outside. There are frontiers in our areas and ourselves. The participants were impressed with the idea of the challenge farm. He suggested the special agricultural, educational, and medical zones on Awaji Island. Aside from the form of the regional system (doshu-sei), we must think about the promotion of domestic multipolarity and decentralization. Thinking of domestic diversification will be the same in aim with demanding a multidimensional, multilayered world economy system rather than market capitalism culture from international places.

For the past 40 years, Asia has accomplished a big success. China and India let their huge populations rise out from poverty, and they are playing very well in the current world economic crisis, which is helpful to the world’s economy. Presently, we are groping for a new Asian cooperation frame here. However, we should not jump to conclusions that the United States is in decline and talk about the development of Asia in anti-American ideology. We trust the great power of restitution of the United States, and hope that the United States will take a firm leadership role to make a multipolar, multilayered system while respecting other cultures and societies without being arrogant. We must cooperate with the United States, overcome the crisis, and make an effort to create a new Asia and world. It is certain that the common target of various opinions exchanged in the conference is the establishment of society where Japan can play a uniquely brilliant role.