RIETI Report July 2004

New Direction for RIETI <RIETI Featured Fellow> YOSHITOMI Masaru

This month's featured article

New Direction for RIETI <RIETI Featured Fellow> YOSHITOMI Masaru

YOSHITOMI MasaruPresident Fellow, RIETI

Greetings from RIETI

Having entered the third year of the first five-year plan of RIETI, RIETI now consolidating hitherto conducted a great many individual research projects is. To introduce the on-going consolidation activities that RIETI Report this month interviewed newly appointed President and Chief Research Officer Dr. Masaru Yoshitomi, who elaborated how research activities at RIETI are being rearranged so as to focus on more clearly identified policy oriented key themes along the line of the mid-term plan.

RIETI FELLOWS NOW

YOSHITOMI Masaru
President and Chief Research Officer

For a detailed biography, please click here

To learn about recent activities at RIETI, please click here

To read the interview President Yoshitomi gave RIETI Report regarding the recent Policy Symposium "Resolving New Global and Regional Imbalances in an Era of Asian Integration," please click here

Interview

New Direction for RIETI

RIETI Report: As a new framework for conducting research at RIETI, you have established six "major common themes" or six "pillars" of major economic issues which RIETI should work on as prioritized important policy areas. Could you tell us why you have chosen these six major issues?

Yoshitomi: I have a lot considered the challenges facing the Japanese economy and, through intensive discussions with researchers, academics, bureaucrats, and business-people these my ideas have been integrated into the concrete policy oriented research themes systematically categorized which RIETI has already focused on.

RIETI Report: Could you explain them in some detail?

The first pillar of our research activities is the "Comprehensive Macro- and Micro-Economic Appraisal of Gains and Losses of the 10 Year Stagnation [the so-called "Lost Decade"] and Identifying New Challenges." This is an issue that many people want to see addressed more exactly since no other research institutes have systematically analyzed this in light of the recent near-exit from deflation and its relations with structural reform.

The second pillar deals with the "Nature of New Global Imbalances - Designing Adjustment Policies Compatible with Further Integration in Asia under Globalization of Trade and Finance." Japan's current account surpluses used to mirror the U.S. current account deficits. Today, however, imbalances exist between the United States and East Asian countries, a new aspect that requires careful analysis. In light of this development, we will examine the characteristics of new global imbalances including necessary and appropriate adjustment of Asian currencies, in particular, the issue of the renminbi.

The third pillar, "Integrated Approach to Public Debt, Pensions and Health," takes a cross-cutting approach in examining fiscal problems, including not only the problem of public debt but also those pertaining to public pensions, mounting medical costs, childcare and nursing care for the elderly. We aim to establish "economics of ageing" as a new research frontier. It would be wonderful if we could prepare a viable policy prescription that draws on the experiences and failures of Japan and other industrialized nations in this regard.

The fourth pillar is "New Financial Market Architecture, New Corporate Governance and Industrial Organization." Here, we need to start with a comprehensive analysis of Japan's banking crisis. Based upon this analysis, we will examine issues that are important for rebuilding Japan's financial market architecture, namely, securitization, new corporate governance, and structural reforms of public financial institutions.

In the fifth pillar, "Exploring New Systems for Innovation," we will analyze what implications the ongoing digital revolution is having on manufacturing architecture and business models. We will also analyze how Japan's digital industry can survive the current global competition, particularly, in the context of rapid commoditization of the latest new products. Based on the new detailed statistics on citations of academic and scientific papers in Japanese patents, we will discover how the "R" and "D" are related with each other in such major technology fields as nanotechnology, IT, biotech, and environment.

The sixth pillar, entitled "Strengthening Data Base and Model Operation," is aimed at the reinforcement of data collection, in particular, of microeconomic data. We will also strengthen model operations in such areas as trade, pensions, energy and environment. This pillar will strengthen the basic infrastructure of research activities at RIETI.

The remaining two years of the initial five-year midterm plan of RIETI will be devoted to finding solutions to the aforementioned common major issues. On June 17 and 18, 2004, we held an international policy symposium entitled "Resolving New Global and Regional Imbalances in an Era of Asian Integration," to address the second pillar of our research activities. Based upon pros and cons expressed during the debate at this symposium, we will produce concrete policy recommendations.

RIETI Report: Former President Masahiko Aoki's design started with a large number of individual research projects and then attempted to group them into "research clusters." Could you tell us how the major common themes relate to these research clusters?

Yoshitomi: The major common themes are a reorientation of the clusters so as to synthesize and reconcile them with Japan's policy needs. The clusters were formed ex post after individual projects had been launched and therefore it has not been easy to synthesize the findings of these individual projects into cluster-wide policy proposals. What I have now been doing is to provide organic links between different research activities from the viewpoint of policy analysis, resulting in the aforementioned six major pillars.

RIETI Report: What are the characteristic objectives of RIETI's policy research activities?

Yoshitomi: Our key objective is to contribute to cross-cutting policy prescriptions. By the term "cross-cutting," I mean that we will address both micro- and macroeconomic problems and the interrelated issues encompassing various government ministries. For instance, under the third pillar of our research activities, we would like to comprehensively solve the whole scope of fiscal problems - ranging from such super-macroeconomic issues as the sustainability of huge public debt to pension problems and to such microeconomic issues as nursing care for the elderly. If we could make viable, comprehensive analysis and policy prescriptions for such wide-ranging fiscal policy issues, it would be pioneering for badly needed simultaneous solutions to fiscal and social security issues.

Let me explain these mutually-interlinked issues using the problem of ageing population as a concrete example. Ageing population means that the total amount of benefits received by pensioners - hence their consumption - continue to grow, while the gross domestic product (GDP) generated by the declining number of working population dwindles. In addition, the cost of medical attention and nursing care for the elderly - another type of consumption of the elderly - will continue to increase as well. In order to cover such ever-increasing consumption by the growing number of pensioners, a greater portion of the GDP generated by the working population will have to be absorbed through taxation or social security contributions. If this trend goes too far, it could undermine incentives for the working population to work and could end up decreasing GDP. Then, it would eventually become impossible to sustain the social security program for the elderly themselves, which is undesirable for both the elderly and the young. To mitigate such wide-ranging problems of ageing population, not only pension problems but also other social security and welfare issues must be tackled simultaneously. The ongoing discussions over Japan's fiscal and pension problems lack an integrated approach. For instance, the current debate on pension issues has been concentrating too much on the disparities in the contribution/benefit ratio between the young and the old generations, thereby not only creating unconstructive confrontation between these two generations but also blurring the real issues. We must first conceive an ideal form of pension scheme and then discover ways to get closer to this ideal. Only through this process can we better identify the concept of the national burden ratio, ie the sum of taxes and social security contributions divided by national income. Especially, we could design a near-ideal pension system in which the amount of pension contributions paid by the young will be equal to that of pension benefits received by the same cohort in the future. Only then would the general public come to understand that social security contributions, which would be paid back to the contributors in the form of benefits, are different from taxes.

Japanese economy is a goldmine full of research subjects. Japan is in the vanguard of population ageing. Among the Organisation for Economic Co-operation and Development (OECD) countries, Japan is suffering the most acute pension problem with the number of its elderly population becoming nearly equal to that of working population rather quickly. In addition, we have exhausted conventional Keynesian policies, both in fiscal and monetary areas. Also, the recent deflation of Japan is unique among the OECD countries and therefore the profound analysis of the exit mechanism from the deflation would contribute to the modern economics. Indeed, no economists have ever identified policy prescriptions to solve economic problems under the zero interest rate and huge public debt accounting for 150% of GDP.

RIETI Report: How do you plan to disseminate research results and policy proposals?

Yoshitomi: Our contribution to the aforementioned key policy issues would make RIETI a policy platform where policymakers and researchers could enjoy easy access to policy-related economic information and analysis. In addition, our policy platform can encourage cross-border discussions between foreign policymakers and researchers on one hand and their Japanese counterparts on the other. Through this platform, we can exchange information and a broad spectrum of policy issues both domestically and internationally.

RIETI is affiliated with the Ministry of Economy, Trade and Industry (METI), which has been expanded from the former Ministry of International Trade and Industry (MITI) by incorporating "economy." However, despite the inclusion of "economy" at the ministry, RIETI is rather weak at other research fields than industry and trade. We have to reinforce our expertise in these new fields.

It is also important to disseminate our research outcome - based upon Japan's own experience of successes and failures as an advanced country - to China and other East Asian countries. We can jointly work with researchers from these countries in addressing common problems and policy issues. In particular, China will rather soon face the challenge of ageing population, similar to the one we have in Japan, but in a more acute way because of its one-child policy. The difference lies in the fact that whereas the Japanese elderly are reasonably rich today, the life of the Chinese elderly in the near future will not be so affluent. It is Japan's mission to share its experiences with China and other neighboring countries so as to prevent them from plunging into such dire straits. This is the way we can establish RIETI as an intellectual platform for both Japan and other countries.

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