China in Transition

Roppongi Hills as a Model for Reform
- Politicians should learn from the entrepreneurs

Chi Hung KWAN
Consulting Fellow, RIETI

This spring saw the birth of Roppongi Hills, a huge town that looks like a near-futuristic world. Since its grand opening in April, it has become a new Tokyo landmark, always bustling with families and couples. This project boasts being the largest domestic urban redevelopment project undertaken by the private sector, and because it incorporates many "progressive" elements, it provides a lot of food for thought, not only in terms of urban renewal, but also regarding the reinvigoration of the Japanese economy.

Roppongi Hills is a district covering 11.6 hectares - roughly the size of eight Tokyo Domes - that incorporates various functions such as "living, working, playing, relaxing, learning and creating" with offices, housing, commercial facilities, cultural facilities, a hotel and a cinema complex. In recent years, many Japanese have expressed surprise at and felt threatened by the transfiguration of Shanghai. However, new urban zones such as Roppongi Hills and Shiodome are actually much more advanced in terms of both hardware and software. As the progress of such large-scale redevelopment projects in Tokyo show, this is nothing more than "the grass is always greener on the other side of the fence" mentality.

The Roppongi Hills project dates back to 1986, when the Roppongi 6-chome area was designated a "redevelopment priority zone." Following this decision, Mori Building Co., one of the landowners, along with others such as TV Asahi, called on fellow landowners to redevelop the site. However, there were more than 500 landowners involved and it was not easy to reach a consensus. As a result of tenacious and exhaustive negotiations, a redevelopment union was established in 1998 with the participation of more than 400 landowners, and construction began in April 2000. While it has taken 17 years from concept to completion, the dreams of those involved have come to fruition with the project's greater-than-expected success.

As this shows, urban redevelopment does not simply stop at technical issues such as the tearing down of old buildings and the construction of new ones. It is the fact that it requires a change in contract-based relationships, especially the land ownership rights of local residents, that makes it similar to government-led structural reforms.

As can be seen in the passion of Mori Building Co., led by its president Minoru Mori, both as a developer and as a comprehensive coordinator in getting the Roppongi Hills project off the ground, it is the entrepreneurs that shoulder the responsibility of urban redevelopment handled by the private sector. The role they play is that of discovering a business opportunity, presenting a vision and the path toward achieving it, persuading those involved and building consensus. Of course, the prerequisite for the project's success is the improvement in the livelihoods of all the residents involved in its realization, but it is also necessary that all parties find the distribution of the resulting benefits acceptable. Entrepreneurs must make a so-called Pareto improvement, a situation in which the benefits of redevelopment spread to all those involved through compensation and other means. But it goes without question that the entrepreneurs themselves must be rewarded in terms of profits, since they shoulder various coordination costs and the risk of the project's failure.

When it comes to government-led structural reforms, it is necessary to go beyond the contract-based relationships between individual economic entities, and change laws that serve as a contract between the government and the people. In doing so, politicians shoulder a heavy responsibility as they are directly involved in the legislative process. Like entrepreneurs, progressive politicians also need the leadership capability to present a vision and persuade vested interest groups and others involved through such means as the redistribution of profits. Repeated confrontation with "resistant forces" will not move reforms forward.

Unlike entrepreneurs, politicians are not supposed to receive any monetary benefits in undertaking reforms, but instead they gain the support of voters at elections and a rise in their fame. Unfortunately, under the current single-seat constituency system, politicians seem to be more passionate about bringing benefits from the central government to their respective constituencies through budget distribution, rather than seeking reforms that would benefit the entire country. They need to be given a fresh incentive through political reforms so that they themselves become reformers who work for total, rather than partial, interest. If both entrepreneurs and politicians start working to nurture a new system, instead of protecting vested interests under an old regime, the day of the Japanese economy's revival might soon be upon us.

August 22, 2003

August 22, 2003