RIETI Report April 2004

Reflections on RIETI <RIETI Featured Fellow> AOKI Masahiko

This month's featured article

Reflections on RIETI <RIETI Featured Fellow> AOKI Masahiko

AOKI MasahikoPresident, RIETI

Greetings from RIETI

The appearance of cherry blossom in Tokyo has heralded the start of the most clement, temperate and beautiful time to be in Japan. However, the all-too short week or so that one has to enjoy the cherry blossom is for this reason always pervaded with a profound twinge of sadness. "The refinement and grace of its beauty appeal to our aesthetic sense as no other flower can," wrote Inazo Nitobe in Bushido (1900), and this is perhaps why stories in Japanese culture, from ancient to modern, very rarely end "happily ever after." The nation seems to share an acute awareness that the very best moments in one's life and in this world will always be painfully ephemeral. And yet that is precisely what makes such moments so great. This month RIETI Report had the honor of an audience with Masahiko Aoki who reflected on his time as President and Chief Research Officer of RIETI since its founding in 2001. (DC)

RIETI FELLOWS NOW

AOKI Masahiko
After receiving an M.A. in Economics from the University of Tokyo in 1964 and a Ph.D. in Economics from the University of Minnesota in 1967, Masahiko Aoki served as assistant professor at Stanford University and Harvard University. He was also a professor at Kyoto University from 1977 to 1991. In addition, he has concurrently held the position of Henri and Tomoye Takahashi Professor of Japanese Studies in Economics at Stanford University since 1984. Dr. Aoki served as director general of the Ministry of International Trade and Industry's Research Institute (MITI/RI), the predecessor of RIETI, from 1997 before becoming president and chief research officer of RIETI upon its founding in April 2001; roles which were relinquished in March 2004. His expertise is comparative institutional analysis, corporate governance, the theory of the firm, and the Japanese economy. His many publications in English and Japanese include: Towards a Comparative Institutional Analysis (MIT Press, 2001) and Information, Corporate Governance, and Institutional Diversity: Japan, U.S., and Transitional Economies (Oxford University Press, 2000).

For a detailed biography [PDF: 160KB], please click here.

To learn about recent activities at RIETI, please click here.

Interview

Reflections on RIETI

RIETI Report: You have served as the president of the Research Institute of Economy, Trade and Industry since its inception as an incorporated administrative agency (IAA). How had you intended that RIETI - a new form of quasi-governmental organization - be designed?

Aoki: I undertook this mission as an opportunity to experiment in creating a new, unique type of research institute in Japan. Specifically, I wanted to create a platform on which government officials, scholars, members of nongovernmental organizations, business consultants and other members of the private sector could freely discuss and interact with each other in generating public policy research relevant to the structural and institutional reform of Japan. So, unlike a typical in-house ministerial research institute, RIETI has come to be composed of a very unique mix of fellows. Many of them are from outside of the government bureaucracy, others even from outside of Japan, and some fellows are quite unique in character and/or engaged in unique studies. Of course, we also have many capable fellows from the Ministry of Economy, Trade and Industry. In addition, we have invited those from other government ministries on board as consulting fellows (who undertake research activities at RIETI outside official duties at their respective ministries or agencies). All in all, I believe that we have collectively interacted in a very interesting way and I personally have learnt a lot from the experience.

As the president of RIETI, I tried to avoid two things. Firstly, I tried to ensure that the results of RIETI research were not publicized as anonymous reports by the organization, but as the research products of individual fellows. In this way I hoped we could protect the freedom of our research from any potential political intervention as well as assure its quality and originality. Secondly, I was always conscious about not becoming the single leading actor of this institute. Of course, I have tried to play an active leading role in some specific projects in which I have a great deal of interest. But the president cannot be almighty and a research institute should have many stars in various fields. The role of the president as I conceived of it was one of "shitsurae" (the act of making overall arrangements in the tea ceremony).

RIETI Report: A recent Policy Symposium on fiscal reform might be a good example of the synergy achieved by the interaction of various types of fellows.

Aoki: Yes. The problems associated with Japan's fiscal system have become so serious that it is no longer possible to adequately address them just by discussing the issues separately - how to improve the primary balance numerically, how to reform the social security system without any reference to tax reform, etc. We need to consider more fundamental issues such as what institutional forces make the government's budget expand, what incentive mechanism is in play behind the budget-grabbing game, and through what process lobbyist politicians who represent special interests step in. There is a lot that can be learnt, for instance, from the insights that business management provide if we view the governmental budgetary process as a management system. The various systems - fiscal expenditure system, tax system, debt management, social security system, and local public finance - are all interdependent and interrelated in terms of organization and operation; a phenomenon we call institutional complementarity. Therefore their reform cannot be achieved in a piecemeal fashion. We organized the fiscal reform project by recruiting members from many different fields and with differing expertise. For over a year we have been continually discussing various aspects of the fiscal system crisis and its institutional environment. Through this I believe we have reached a better common understanding of the problem and each member has been able to present their views on reform in that context.

Asian Network of Economic Policy Research (ANEPR) has been another RIETI achievement. This is an attempt to build a permanent network among specialists by bringing together administrators and scholars in Asia - as well as American and European researchers, and even non-Asia specialists depending on the topic - and providing them with an opportunity to freely exchange opinions with one another. This is not meant to be a one-time academic conference where participants discuss academic papers. Instead, ANEPR is a forum where we endeavor to identify issues of future pertinence to Asia and try to create a human network for continuous discussion. In a recent ANEPR symposium, we took up the security problems revolving around North Korea and the Taiwan Straits in the context of U.S. global policy. Interesting discussion was also held on the various impacts of the ongoing information technology revolution, for instance, how cultural content is being spread and shared among Asian youth by means of the Internet, and what implications such phenomena have on the integration of Asian markets. When severe acute respiratory syndrome (SARS) broke out, calls urging the Chinese government to disclose information properly emerged from and were spread by means of the Internet. In the same manner, however, anti-Japan sentiment has been spreading and the Chinese government cannot afford to remain indifferent to what is being discussed on the Internet. Globalization has made security a major theme in various fields ranging from military affairs to economy and crime. But the question of how to maintain a balance between security and privacy remains a problem. So, what we attempt to do through ANEPR is actively provide opportunities for cross-border discussion on such contentious issues. The latest ANEPR symposium in January - which was attended by a philosopher, a magazine editor and an NGO member involved with rulemaking for Internet governance, in addition to economists and scholars of political science - served as an opportunity for us to discuss a broad range of issues.

As another example of what has been achieved so far, I would like to point to the reinforcement provided by RIETI's research support staff. When this institution was formerly the in-house Research Institute of MITI, there was no clear distinction between a researcher's tasks and those of research support. As such, researchers, while undertaking their own research activities, also had to take care of the logistical side of holding an international conference and so forth. To rectify this situation, we recruited various professional staff from outside the market thereby creating a conference team, an international team, and an online editorial team. The online editorial team's accumulation of skills during the past three years has been remarkable. And I heard just the other day that access to the Japanese-language website has now exceeded 1 million visitors thanks to the efforts of all those in the online editorial team led by Ms. Tanimoto. Congratulations.

RIETI Report: RIETI is a quasi-governmental institute located in the midst of the Kasumigaseki administrative district. In making policy proposals, has RIETI faced any difficulties arising from its unique status?

Aoki: People watching from the outside often ask how RIETI, being a quasi-governmental research institute, can make bold policy proposals. During the past three years, however, no restrictions have been imposed by METI with regard to our research activities. Of course, there are all sorts at METI. Some of them have taken an interest and participated in our projects, while others - especially those who have had little interaction with us - have been critical of our activities, questioning why RIETI is spending money on what they believe to be "useless" projects. But all in all, I don't think we have been subjected to any particular restrictions. Yet, I believe that experiments such as RIETI will continue to face certain frictions stemming from the cultural norms and conventional ways of doing things that they collide with in the Kasumigaseki district, because the Japanese administrative system - symbolized by this district - has only just reached the crossroad of institutional reform.

Looking back on the past three years of RIETI as an IAA, a fundamental question that is, in my view, still of great ambiguity is the issue of evaluation. Under the current performance evaluation system for IAAs, RIETI, for instance, is first evaluated by an evaluation subcommittee which has been put in charge of RIETI. Led by Yoshihiko Miyauchi, chairman and chief executive officer of Orix Corp., the members of this subcommittee - all of them quite knowledgeable and possessing excellent judgment - have, despite their busy schedule, provided us with their precious opinions and advice, for which I am extremely grateful. However, the subcommittee then has to report to METI's Evaluation Committee for IAAs which is responsible for the evaluation of all the incorporated administrative agencies affiliated to the ministry. The ministry-wide committee then has to report to a government-wide committee, namely, the Commission on Policy Evaluation and Evaluation of IAAs in the Ministry of Public Management, Home Affairs, Posts and Telecommunications. The further one progresses up toward the top of this hierarchical structure, the less specialized and less informed the evaluators are. Then, the question arises as to whether such a hierarchical system is capable of evaluating "soft" content such as the results and outputs of research activities. Consequently, evaluation criteria tend to become perfunctory with a focus placed on easy-to-measure numerical targets, such as how many discussion papers have been written by researchers and how many original publications have been published by the institute, rather than on the substance of research activities. Or some people begin to ask whether faculty fellows - those engaged in RIETI activities while holding a university faculty position - are really engaged in unique research activities at RIETI. Of course, we need to be strict in applying rules and have been. But if rules filtered through the bureaucratic structure are left to become objectives in themselves, they run the risk of creating a kind of "research socialism" where people start counting the number of publications. Or some bureaucratic administrators tend to become suspicious of outsider research fellows, which in turn may impose nepotistic exclusiveness or closedness. From the perspective of the independence of an IAA, such implicit bureaucratic pressure is far more problematic than explicit restrictions over specific research activities.

There have been many opportunities to meet with the members of other research institutes established as IAAs and they are voicing the same concern over the current evaluation mechanism. This is a generic problem for the whole mechanism of IAAs. As of April 1 this year national universities will be re-established as IAAs in Japan. Should all of the 87 institutions be subjected to uniform evaluation criteria, emphasis would become placed on numerical targets. But how can we evaluate a university of fine arts, an institute of technology and a regional university with uniform numerical criteria? If quality is paramount, then the evaluation of each IAA should be left to each relevant subcommittee with the roles of umbrella committees limited to evaluating the appropriateness of the composition of each subcommittee.

RIETI Report: You have often said that the past 10 years were not a "lost decade" and that Japan has been and is in the process of institutional change. In this historical context, how would you define RIETI within the institutional framework of Japan?

Aoki: Within the core of Japan's old-fashioned institutions lies vertical compartmentalization as seen in the industrial structure, in administration organizations and so on. Under such a compartmentalized structure, members of each organization have their seat secured by the life-time employment system. With time, people belonging to the same entity come to share a common culture and the survival of their organization becomes the chief objective in carrying out their tasks. In a sense, the whole system hinges on an implicit premise that each member knows the exact timing of and way to take concerted actions with their fellow members so that they contribute together to the organization to which they all belong.

What is needed from now on, however, is the creation of a new culture that can break down the vertical walls separating organizations or sectors. With the help of technology, the walls between compartments will begin to fall and people sharing the same kind of skills or interests will synergistically come together regardless of their affiliation. How to weave these vertical and horizontal links will be a major challenge for Japan. In this regard, I see a substantial generation gap in people's attitudes. Younger people are much more liberated from meaningless loyalty to the organization to which they belong. They would not hesitate to move from one organization to another, and they know very well about matters outside of their organization. We are now entering an era where more and more people know that the organization to which they belong is not the whole world. Mobile phones, the Internet and email are playing significant roles in this phenomenon.

Against such a backdrop RIETI has brought together various kinds of people from a variety of organizations. Some people say that RIETI is like the Liangshan Po in Sung Dynasty-era China, using the term with either positive or pejorative connotations. But I take pride in having RIETI described in such terms.

RIETI Report: Finally, what do you plan to do upon retiring from your position as the president of RIETI?

Aoki: As of the end of March, I will retire not only from the presidency of RIETI but also from the economics faculty of Stanford University. However, just like colleagues who have retired before me and those who will retire after me, I will remain an active player in the field of research. Therefore, while retaining an emeritus post to teach one quarter at a graduate school each year over the next five years, I would like to devote the rest of my time to my own research activities. Specifically, I would like to contribute to the further development of comparative institutional analysis, which is my self-imposed lifework.

When I decided to come here into the midst of the Kasumigaseki central administrative district in Tokyo, I jokingly told Avner Greif and Douglass North - my fellow researchers in the field of institutional analysis - that I was going to undertake fieldwork on institutional change. Indeed, my experience at RIETI over the past three years has been truly precious. And I am looking forward to having plenty of time from now on to reflect upon and build theories based on my experience. For the time being, I will be going back and forth between Japan and the United States, and between Asia and Western countries.

What has been achieved during my three-year experiment at RIETI may be modest, due partly to the limits of my capacity, but I am deeply grateful to all the fellows and staff who have worked with me throughout these years, sharing mutual respect and the same dream. Let me thank you all very much.

(The titles used in this article were correct at the time of writing.)

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