RIETI Report January 2004

What is Needed to Change Japan? <RIETI Featured Fellow> NISHIMIZU Mieko

Greetings from RIETI

From Kill Bill to the forthcoming Lost in Translation, Japan is currently proving a popular setting and theme for Hollywood films. Yet, while these two merely pastiche or comment upon Japanese culture, it is The Last Samurai which treads on the most dangerous territory with its fictionalized account of the dissolution of Japan's warrior class. For some, the thought of Tom Cruise wielding a katana as he charges into a line of gunfire in a film which has taken a number of historical liberties is a recipe for disaster, for others, it is the reason for watching such a film. Nonetheless, The Last Samurai has been a big hit in Japan, and many have been impressed by its portrayal of bushido and casting of respected Japanese actors. Whatever one's views are on this California Roll of fact and fiction, the film's powerful visual presentation of a Japan at the turn of the Meiji Restoration Era - one of the country's greatest "reforms" - is fascinating, especially given the present context in which it is being watched. Although The Last Samurai has a tendency to orientalize, romanticizing traditional culture while being overly-hostile to economic and industrial progress, its central conflict of respect for the old ways with the need to globalize could be a distant reflection of the political, economic, and constitutional debate over reform that is taking place today.

This month, RIETI Report is proud to present a translation of an interview with Consulting Fellow Dr. Nishimizu that was previously published on the Japanese RIETI website. (DC)


Having received a doctorate in economics from the Johns Hopkins University, Dr. Nishimizu joined Princeton University as an assistant professor in the Department of Economics and Woodrow Wilson School of Public and International Affairs. In 1980, Dr. Nishimizu embarked upon a long and illustrious career at the World Bank which would span 23 years and saw her serving in a diverse number of positions including on the Development Policy Staff, on the Industry and Energy Staff, in the Europe, Middle East & North Africa Regional Office, as well as heading the Risk Management and Financial Policy Department - the World Bank's internal "banking supervisors." The pinnacle came in early 1997 when Dr. Nishimizu was made Vice President of the South Asia Region. After more than six years of working in this capacity, Dr. Nishimizu left the World Bank and joined RIETI as a Consulting Fellow in December of 2003.

For a detailed biography, please click here


What is Needed to Change Japan?

RIETI: As the World Bank's Vice President, you have financed the development programs of many countries. You must have personally observed many examples of success or failure in reforms through your work. How do you analyze the factors behind the political and economic stagnation in your home country, Japan? What should be done to remove such causes and push forward with reform?

Nishimizu: The World Bank is a bank that takes the sovereign risk of developing countries. So, if their policies were very bad, it would be out of the question for the World Bank to extend financing to any development projects they proposed, no matter how magnificent they may be. For this reason, there were indeed many opportunities for me to become involved in the field where structural adjustment reforms were taking place, and since this had been my job before becoming vice president, I would say that I have had some 20 years of experience in the matter. Especially after becoming vice president, I was essentially swimming in a bog of political economy of reforms, where politics of change and economic policy reforms are intertwined, on a daily basis. That was the essence of my work.

So, I learned a great deal at the World Bank. But, because the process of economic development is the process of continuous structural adjustment sustained over a long term, I cannot say with certainty that this country was a success or that country was a failure within such a short-term period of some 10 or 20 years. While I did gain various insights into what was technically good and bad about individual policies, strangely enough there was always one major factor, well beyond such technical issues, which was common to all the countries that I felt were on the right track.

Perhaps it boils down to "a national sense of crisis and leadership." In nations where a majority of people are concerned about their country's future and share a real sense of crisis as if it were their own, the strength and courage to share the pains of reform emerges, and becomes a positive political driving force with which to face structural adjustments head-on.

Other than in times of war, such a national sense of crisis is not something that spawns naturally in a short period of time. If people sit and wait without doing anything, it will be too late when such a sense of crisis does take shape. Inaction will most likely lead to a situation where little can be done to address political chaos and economic collapse. In fact, it is sad to say that we see such cases all too often among developing countries. Such a situation is usually seen in developing countries that do not face immediate financial constraints, due to abundant natural resources, or significant aid flows with insufficient regard for the quality of the countries' policies.

*Reforms move forward when leaders and the public share a sense of crisis and a vision*

In countries that are steadfast in pursuing their reform agenda, there are always leaders who make enormous efforts to share their own sense of crisis with the general public.

Through my work I have been able to assist a number of such leaders, and I must say that they are all exceptionally hard workers. They bring together the best and the brightest from different spheres of society, and diligently study policy issues together with civil servants. They work to grasp and comprehend for themselves what the problem is, why it is bad, and how to solve it. This is true even for top national leaders such as presidents or prime ministers. They know that unless they do so, it is impossible for them as politicians to speak actively and broadly to the people. They cannot win the public's trust if they cannot disclose the problems honestly, explain issues in their own words, offer dreams and hopes through their visions for the country, and rouse and inspire the hearts of the people.

The national pension system is currently under debate in Japan, but one country that received assistance from the World Bank had a similar problem. The leaders of this country first of all pointed out clearly to the public that without an overhaul of the pension system, it was likely that the nation's finances would collapse. They then suggested that this was an opportunity to ponder what sort of pension system would best serve the country's interests. They spent time explaining that the public sector should strive to offer a safety net that guarantees all citizens the minimum standard of living, and that the state should not and could not afford to use tax revenue to guarantee a standard higher than that. They also said it was wrong to discuss the issue of pension funding within the framework of the pension system alone, and proceeded with pension reforms as part of the overall fiscal policy reforms. These leaders not only studied the pension issues thoroughly, but they also did not forget to appeal to the public's conscience in deciding what policy was right. I was moved by the passion and patriotism of these politicians and civil servants, who attached high priority to communicating with the people, and pushed their reforms forward by working closely with the mass media. It was truly a wonderful thing to see.

Scholars of management and business administration maintain that the quality of leaders and the inspiration they give to employees determine whether a business as an organization can overcome a great difficulty. I believe that exactly the same applies to nation states.

I have always asked leaders of developing countries to "listen to the silence." And, I have routinely given this advice to those who were uncertain about tackling reforms head-on: the politics of structural adjustment and reform is often seen as negative politics, but I absolutely reject such an idea; reforms to implement good economic policies that benefit the country are sure to win the support of the majority of the people - the support of the law-abiding citizens who have no political or financial power and are often at the mercy of the powerful; with all due respect, I believe it is the mandate and the responsibility of leaders to discover how to listen to this silence and utilize what they hear to implement positive reforms in politic. "Good reform is good politics," was my habitual "broken record", and whenever I repeated those words in my work, feeling like the proverbial frog that had left its well, my thoughts and concerns turned to my homeland Japan.

All things considered, I feel there is nothing more powerful than for the public and the politicians to experience the actual reality of "good reform is good politics," even through small and inconspicuous reforms.

If I may digress a bit, I spent two months from early September to late October of last year visiting eight South Asian nations on a farewell tour. Recalling my visits in 1997 to introduce myself as the new vice president, I was deeply impressed by the great leap these countries have made in their respective economic and political progress. Although the contributions made by the World Bank were miniscule, for six years we walked the thorny path of structural adjustment and ensuing political reforms hand in hand with the leaders and "champions of change" of these nations. We cried, laughed and learned together along the way. Following the World Bank's motto of never mincing words and always speaking one's conviction on what is good for the people and what is not, I sense that, however little, we might have assisted in their nation-building to some extent.

This being the nature of my work, I was greatly helped by the journalists of these South Asian nations, who are at the frontier of journalism in the region and act as opinion leaders in their respective countries. The most important thing I learned from them was that how a nation fares is solely dependent on the quality of political leadership and of the discipline administered by the public to their leaders. It was sad to say goodbye, but I have great hopes for the futures of these professionals, who say with passion and conviction that "no other career linked to nation-building is as rewarding as journalism, which provides the people with accurate information and good analysis."

I believe that the time is ripe for Japan, too, to be in great need of journalists who neither mince their words nor blindly follow what others do and say.

*The key is to initiate a positive chain reaction from one core reform*

The Japanese economy is stagnant because various microeconomic obstacles within the economic structure are causing negative chain reactions, pulling down the macroeconomy. But, there is no need to be pessimistic and think that there is no way out. This is because there is one great advantage to any negative chain reactions - once a positive factor is introduced by reforming one part of the chain, it can trigger change in other parts. For example, a whole-hearted attempt to reform the banking system paves the way for change in various other sectors, such as labor market regulations, information technology policies, tax systems and real estate markets. In fact, unless this is the case, the banking reforms themselves would be half-baked and incomplete. From my own experience, I think Pakistan's recent success with banking reforms is the best example of one reform triggering a positive chain reaction that spread nationwide to all other reforms of the political system and economic policy.

Starting a positive chain reaction and gradually gaining the confidence and support of the public by implementing even just one reform measure in earnest is a strategy often adopted by developing countries that implement serious structural reforms. Almost all of the structural obstacles in developing countries have their roots in corruption and bad governance. It takes great political courage to stand up to this, but many countries begin by stamping out corruption and initiate reforms in education and the health sector. This is because governments can gain wide public support in a short period of time by establishing good governance in areas closest to the people's hearts. In my experience, there is no better or more important source of courage for politicians spearheading reform efforts than actually experiencing and gaining strength from the fact that "good reform is good politics."

As the saying goes, "falling raindrops will crack a stone." No matter how small a job is, if it is a really good reform measure that politicians tackle in all earnestness, it will bring about a positive chain reaction and accelerate overall structural adjustments at an almost unimaginable speed. There is no reason why Japan cannot do what developing countries can.

RIETI: Do you believe that Japan, infested with vested interests and populated by a youth who have lost the power to get angry (younger people do not vote in elections, and it seems they are indifferent to issues pertaining to the Self-Defense Forces), has the strength to change itself?

Nishimizu: This is a very important question.

In no country can people act without courageous leadership. I have high hopes for the female politicians of Japan. The strength of those in the minority lies in the fact that they are not stained or captured by the vested interests of the status quo, and they have the power to become genuinely angry because they themselves have experienced various forms of discrimination. Of course, there are many respectable men as well.

I have worked on development issues for a long time, but I am always pained to see the social ills brought about by prosperity. I cannot help but think that policies which only focus on economic growth turn the material desires of humans into some negative force. The Japanese, whom I have been observing from the outside for a long time, seem to be turning into a people that have lost their spiritual happiness, or a place their soul can call home.

Yet, I do not think this is unique to Japan, but a problem affecting practically all countries. Still, we should not despair, because there is one country in the world that has successfully made both material and spiritual prosperity the foundation of its development policies. This country is the Kingdom of Bhutan, whose vision proclaims that "Gross National Happiness" is more important than Gross National Product. Forty years ago, Bhutan's economy had no currency and was based on the barter system. Yet, it has maintained a high growth rate and has surpassed countries including India to become the nation with the highest per capita income in South Asia. In World Bank performance ranking, it easily holds the No. 1 spot among all developing countries. Nevertheless, everyone who visits Bhutan says they feel as though they have returned to the home of their hearts. I think that Bhutan's case offers us members of the global community an immeasurably profound insight. Bhutan is a country I dealt with directly in my capacity as World Bank vice president for South Asia, and if I start talking about it I won't stop, so let us put this off for another occasion.

*The eradication of poverty worldwide will lead to global and domestic peace*

RIETI: In your book Hinkon ni Tachimukau Shigoto ("Working to Fight Poverty") (Akashi Shoten Co.), you say that the human race already has the financial means and the technology to eradicate poverty from the face of the earth. If it really is possible to create a world without poverty, it should be done immediately, but what, specifically, should be done, and how can Japan help?

Nishimizu: It simply boils down to good governance, and enlightened social and economic policies.

I have seen with my own eyes, at the grass roots of many countries, how poverty actually becomes a hotbed for political crisis and terrorist activities. The eradication of poverty is not just a problem for developing countries. I believe it is an issue that is directly linked to peace in the world and also in Japan.

Japan extends significant amounts of official development assistance (ODA) to developing countries. So, I would like the government to make further efforts in ensuring that this money promotes good governance and policies. If the political governance and economic policies of a recipient nation are bad, ODA flows should even be halted.

But, we need to practice what we preach, and nothing is effective unless we set an example. Japan is still revered as a model by many developing countries for being the only country in modern history to join the ranks of industrialized nations. Speaking from my actual experiences rather than theories, I feel that we should not overlook the reality that the reforms which Japan implements at home have a great positive impact that transcends national borders.

Extending ODA is not the only role Japan can play. I am certain that in both volume and economic impact, the benefits that international trade liberalization can offer to the economies of developing nations far exceed those of ODA. I think that reforming Japan's agriculture policies to foster a highly competitive, dynamic farming sector for Japan's future and the pursuit of forward-looking trade liberalization policies will, in the long term, not just serve Japan's national interests but also assist developing countries.

RIETI: Reading your book, I gained a renewed understanding of the importance of educating and changing the mentality of women. While women have made great social advances in Japan, we still see on various occasions, even in major newspapers, discriminatory remarks such as a woman's happiness lies in getting married and having children, or motherhood is in a woman's instinct. How can such a situation be corrected?

Nishimizu: It is very important to change the mindset and actions of top leaders in government and business. This is because ending discrimination against women is beneficial to both the country and to corporations. As vice president, I made efforts to hire more women at the World Bank, and was always spurring my subordinates on, reminding them that "it's good for business." I mention some specific examples in my book, but it really is true!

I implemented a strict policy when hiring or appointing women. I instructed my staff to search high and low for female candidates, spending as much time and money as necessary. But when it comes to the actual selection process, the issue of gender must be completely ignored. I said that hiring someone because she was a woman discriminated against men, and that the honor of the vice president would be tarnished if such a thing were to happen. My staffers initially laughed, saying, "Mieko, you have finally gone mad." I persuaded them to trust me and do as I said, and when we began, the women kept coming and coming. It was almost unbelievable the way the number of female staff increased in such a short time.

This should come as no surprise. The women who qualified as candidates were people who had overcome various forms of discrimination and other obstacles, so on average they had more experience and skills than men. Furthermore, these women add new value to their work by bringing a female perspective with them, which is often overlooked by men. When the number of able female staff increases, it always works positively in getting male staff to personally experience why "it's good for business" and be delighted by it. This becomes the driving force that accelerates and sustains organizational reforms, and supports the dynamic and non-linear process of change from the inside. All this is only natural.

It takes a change in the mindsets of top leaders to put such natural things into practice. In this sense, I give high marks to Prime Minister Junichiro Koizumi for appointing first-rate women such as former Justice Minister Mayumi Moriyama and Foreign Minister Yoriko Kawaguchi to leadership positions. In essence, there should be nothing extraordinary about having women hold at least half of the seats in the Diet or Cabinet. I cannot help but hope, for the sake of Japan's future, that such a day will come as soon as possible.

RIETI: In closing, can you tell us what sort of research you plan to do at RIETI?

Nishimizu: Since I am a freshman fellow, I think that for a while I would like to attend as many RIETI-organized conferences as possible. Please invite me, especially, to international conferences, since I am good at hurling defiance at people in English! I would love to participate.

There are several research themes that I have long harbored, but the fundamental motive they all share is my ardent desire to do something that will help, in any small way, the future of the Japanese people. I've been a runaway for so long!

I'm sure you are already aware of it through this interview, but my first interest lies in the study of the intertwining between politics of change and economic policies, or political economy of reform. I would like to make use of my experiences at the World Bank when tackling this theme.

I would also like to conduct research on Bhutan's unique development vision of "Gross National Happiness."

(This interview was given on Dec. 22, 2003. The text was compiled and edited by Toko Tanimoto, Chief Editor and Manager of the RIETI website.)


3/11-12 RIETI Symposium
"Fiscal Reform of Japan: Redesigning the Frame of the State"
For event program and information, http://www.rieti.go.jp/en/events/04031101/info.html

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Brown Bag Lunch Seminars

All BBLs run 12:15 - 13:45, unless otherwise stated.

2/6 Speaker: Luc WEBER (Professor, University of Geneva)
Moderator: HARAYAMA Yuko (RIETI Faculty Fellow / Professor, Tohoku University)
"Reforming the European Higher Education and Research sector for the knowledge society"

2/13 Speaker: NISHIDE Tetsuo (Director-General, Chugoku Bureau of Economy, Trade and Industry, METI)
Moderator: IRIE Kazutomo (RIETI Director of Administration)
Title: TBA

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1/29 TSURU Kotaro (Senior Fellow)

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This month's featured article

What is Needed to Change Japan? <RIETI Featured Fellow> NISHIMIZU Mieko

NISHIMIZU MiekoConsulting Fellow, RIETI

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RIETI Report is published monthly.