RIETI editorial staff:
During your 27-year career with McKinsey & Co., you served as a management consultant for various companies ranging from manufacturers to financial institutions and other service companies, helping them work out strategy and offering various advice such as organization redesign. Now you have left the corporate management front and joined us. What sort of research activities do you plan to undertake at RIETI?
Two years ago while I was with McKinsey, I was engaged in a project that examined the problem of Japan's poor economic performance from the perspective of productivity. At that time, we established a certain viewpoint concerning various problems plaguing Japan and I would like to further proceed with that research here at RIETI. There have been mounting calls for structural reform but no consensus has been made as to what specific changes need to be carried out. Some people hope for the revival of Japan's good old days with robust economic growth. What they have in mind is the remarkable comeback of the United States in the 1990s from its prolonged stagnation in the 1980s. The conditions Japan is facing today, however, are totally different from what the U.S. experienced at the time of its revival. The Japanese population will start to shrink rapidly, and we are heading for an aging society where those aged 50 or older will account for half the population. We must make this prospect a preposition to discuss how we can reconstruct the country. Today, Japan has unprecedented affluence. Yet, because of this, we lack determination, tenacity and the desperation to tackle problems, even if we know the problems are out there. As a vision for reforming Japan, I define the current status of Japan as a "decline with affluence." While I use the word "decline," this is different from what might be implied in a "tragic decline," found often in world history. Japan's personal financial assets are said to total \1.4 quadrillion. In 1994, the figure was \1.1 quadrillion. So, despite depressed share prices, Japanese people's financial assets have increased by approximately \50 trillion annually and this is equivalent to the total amount of personal financial assets in South Korea. As such, Japan is huge and affluent. While affluence is bad in the sense that people get spoiled and lose their tenacity it also is a source of tremendous hidden strength and we should take advantage of that strength.
Three ways of realizing a "retreat with affluence"
How can we take advantage of our affluence?
There are roughly three ways:
- 1) let one person lead two lives;
- 2) increase the transient population; and
- 3) abandon the "Japan" mindset.
By letting one person lead two lives, I am referring to one person physically living in different two locations. For this, a four-day working system must be introduced. If people are free from work for three days a week, it will bring great relief to working mothers with young children, and having a longer weekend will help boost personal consumption. If more people opt to split life between two locations, for instance, living in Tokyo for four days a week and Sendai, Miyagi Prefecture for the remaining three days, it would double their spending on furniture, home appliances and electronics.
Productivity would also go up. Japanese white-collar workers are engaged in relatively monotonous routine work, with roughly 90 percent of their tasks perceived to be routine. While the process of work might be different, the manner of processing it remains the same. Japanese white-collar productivity tends to be low because the lack of good measurement. If individuals do not want to have their salary reduced under the four-day working system, all they have to do is to finish in four days what they used to do in five days. That way, they can improve their productivity by 20 percent. Furthermore, this system would make it easier for a woman to become a mother without giving up her career and thus, lead to a better balance between the female employment rate and birth rate. I am determined to promote this one-person, two-lives system, though I still need to collect a lot of data to back up the idea.
As to the second point of increasing the transient population, I believe Japan should become more of a tourism-oriented country. The U.S. receives a total of 50 million visitors from overseas every year, earning some US$100 billion in foreign tourist revenue. In contrast, Japan has only 4.4 million foreign visitors per year and its domestic tourism has hit a peak. Japan should devise a system to attract as many as 30 million foreign tourists, especially from China and South Korea, every year. When this country becomes more tourism-oriented, it will generate more jobs for elderly people. For them, a lack of IT literacy would not be a disadvantage because indigenous knowledge of local traditions and culture is what counts most in the tourism industry.
Most likely, what begins as pure tourism will also lead to an inflow of a sort of "ego investment" to Japan. For instance, when one buys a French winery, he or she is bound to suffer massive losses. Still, many people are eager to buy one. It does not make sense economically, but owning a French winery gives people a certain status and satisfies their egos. The same can be said about having a vacation house in Hawaii and owning a building in Manhattan. Likewise, we should create an environment for Asian moguls to choose Japan as a destination for their ego investments. People in other Asian countries have ambivalent feelings about Japan and Japanese things. Wealthy people in China may someday feel it trendy to own real estate in Japan.
The final point is about discarding the "Japan" mindset. Generally speaking, national borders are not defined naturally, except for in the case of an island country like Japan. The complementary concept to the idea of globalization is regionalism, in which a "nation" is a confrontational concept. If the natural economic unit is the city, as economist Jane Jacobs claims, a metropolitan economy self-generates itself and, thus, economic policies within the framework of a nation - a unit defined by artificial boundaries - have little effect. Some floated ideas of dividing Japan into several regional blocs would not be an answer as boundaries would still be artificial. Rather, in recognizing a regional economy as a base for a natural economic unit, policies should be devised in a way to support the natural evolution of such economic zones across administrative boundaries by, for instance, facilitating local autonomy and cross border cooperation. There has been much criticism about the current excessive concentration in Tokyo, but it is necessary to more closely examine specifically what is wrong with such concentration. A more positive approach should be taken such as redesigning the urban structure to ensure the safety of the some 40 million people living in the Tokyo metropolitan area. It is necessary to create an organization, such as a Greater Tokyo Metropolitan Council, through which municipalities and governors actively participate in the region's development.
China is Neither a Threat Nor a Chance
From what you have just said, I have an impression that a new Japan, which will emerge following a retreat with affluence, will be quite different and far more mature than today's Japan. Concerns have been voiced over the decline of Japan's manufacturing sector. What is your view in this respect?
Japanese companies have worked, and, will work hard to make advancements in leading edge technologies such as nanotechnology despite it not being promoted by the government. They are very keen when it comes to spearheading technologies. Some people worry that factories may disappear from Japan, but factory workers account for a very small portion of overall employees in Japan's manufacturing sector. Japanese manufacturing companies characteristically have a relatively large number of non-factory workers. Designing and offering value-added services are far more important than physical production. Certain techniques and traditions are nurtured and held by individual blue-collar workers but we can retain them by making conscious efforts to specify those techniques and provide opportunity for workers to keep them. What is important is not to undermine parts makers and other supporting industries that enable the production of made-"only"-in-Japan products. The media, without close examination, make much fuss over the phasing out of Japan's manufacturing industry. But designing and start-up production facilities will continue in Japan. Samsung of South Korea is using the know-how of an electronics maker in Japan. What we have to do is clearly define the meaning of "hollowing out" and then rationally think how we can avoid it.
I would rather propose what people would not dare to undertake. Under such a scenario, the Chinese people would work hard and their country would develop, but many things would be lost as well. For one thing, lots of greenery would disappear and also there would be a spread of materialism and mental physical fatigue. When that happened, Japan would be an attractive place full of greenery. Tokyo and Shanghai are only two and a half hours apart by plane, which is an extremely fortunate thing. Japan could be a healing place for Chinese people. Hokkaido would be very appealing because no such forests exist in China. Japanese golf courses and ski resorts would be filled with Chinese tourists. It is important to create an environment here in Japan in which people accept this kind of development. Since roughly \500 hundred trillion worth of personal financial assets will increase for the coming 10 years, at least \100 trillion could be invested through the U.S. in China to earn certain investment returns. Debates over whether China is a threat or chance tend to become a one-way avalanche. I believe that Japan and China can form a more complex, complementary relationship, and avoid a one way or the other debate.
Design of Ultimate Social System Needs to be Created within Japan's Organizational Structure
That is a very unique and grandiose proposal. Here at RIETI, we have various research clusters such as innovation, China study and so on. And we hope this Social System Design Workshop will present a vision on the kind of society Japan will evolve into when ideas proposed by these clusters link up and materialize.
For that, of course you need experts. But I often wonder whether there are only two kinds of people, experts and complete amateurs, with no one in between. I think you need people who are non-experts to offer some wild ideas. In Japan, people in the same field repeat the same kind of arguments. Those people even pursue identical goals and ambitions. To expand the scope of ideas, some oddball opinions are necessary and you need to be receptive to such opinions. I would like to be like Arlequin in medieval Europe, who served and gave surprises to the king. As I majored in architecture, I am more interested in social system design than policies per se. I hope that the redesign of an current outdated social system can be achieved within the structure of this country. Although I am interested in social system design, this is ultimately a job for the government, not mine. What I could do would be to work toward that end by designing a new "market" Which function as a social subsystem. This will be the fourth way of utilizing affluence. Once again, it is the design that is important. Even with a simple market like a morning fair selling vegetables, you cannot have "yokkaichi (every-fourth-day market)" unless you make it a rule to "get together every fourth day." Markets and social systems must be designed and put into practice. Only then, a "decline with affluence" can be completed. This is surely a grandiose plan and it will probably take 30 years or so to realize.
Interview and report by Toko Tanimoto
October 31, 2003