Evol. Inst. Econ. Rev. 9(Suppl.): 113–133 (2012)

ARTICLEThe Present Problem of the Hokkaido Regional
Economy and a Remedy: A Reform Plan of theInstitution of Money and Finance by Using
Hokkaido Community Currency
Makoto NISHIBE
Graduate School of Economics, Hokkaido University, Nishi 7, Kita 9, Kita, Sapporo
060–0809, Japan. E-mail: nishibe@econ.hokudai.ac.jp
Abstract
Hokkaido as a regional economy outside metropolitan areas in Japan has suffered many
serious economic problems in the ‘two lost decades’ caused by the current trend of
globalization of capitalistic market economies. For instance, prolonged depression, decline
of local economies, disparity between urban and rural regions in term of the rate ofbankruptcies and the rate of unemployment, and persistent interregional balance of
payments were observed. Hokkaido is frequently advised to strengthen its secondary
industries to lessen its big interregional deficit of payments, however, it seems to be out ofdate in our post-industrial age and irrelevant to the region whose major sectors are
agriculture and tourism. The implicit assumptions of theory of comparative advantage thatback up such a remedy are also examined. In order to give a theoretically possible answer tosuch problems, the present paper, based on evolutionist institutional design in terms ofmoney and finance, proposes a new reform plan for creating Hokkaido Community
Currency (HCC) for enhancing local production for local consumption and forming a moresustainable and ethical socioeconomy.
Keywords: Hokkaido regional economy, comparative advantage, local production for
local consumption, evolutionist institutional design, Community Currency.

1.

Introduction

In this article, we examine the problems that the current trend of globalization has caused
to such regional economies as Hokkaido, Japan and, in order to give a possible answer tothem, present a new reform plan for creating Hokkaido Community Currency (HCC) forthe purpose of enhancing local production for local consumption.
It has often been advised that Hokkaido should strengthen its secondary industries tolessen its big interregional deficit of payments, but we argue that the remedy is out ofdate in our post-industrial age and irrelevant to Hokkaido whose major sectors are
JEL: B52, E02, R11.

M. NISHIBE

agriculture and tourism. Such an idea presupposes the conventional view based on thetheory of international trade in economics, which suggests that a regional economy
should transform its present industrial structure so that it can specialize in comparativeadvantageous industries to correct interregional imbalance of payments. We criticallyexamine the implicit assumptions included in the view and suggest that we should rathertransform the monetary and financial institutions, not the industrial structures
themselves, into new ones that are more suitable for developing recycling-oriented
economies from present industrial structures.
HCC is one of the possible reform plans based on evolutionist institutional design interms of money and finance and its aims are to strengthen the comparative advantage of
Hokkaido in agriculture and tourism and to form a more stable and autonomous
socioeconomy without dependence on financial aids of the central government andwithout experiencing the effects of frequent international financial turmoil.
2.

Conventional Diagnosis and Prescription for Hokkaido’s Economy and

Its Problems
We first review what the usual diagnosis and prescription on Hokkaido’s economy are,and question the conventional ways of thinking contained in the points at issue.
Hokkaido’s gross regional production in 2004 is 20.2 trillion yen of which the rate ofprimary industries is 3.7% (1.7%), that of secondary industries is 18.2% (27.5%) andthat of tertiary industries is 81.7% (74.6%).1) The rate of the construction sector is 8.5%
(6.4%). The main features of Hokkaido’s industrial structure are seen from the data as: 1)
higher rates of primary and tertiary industries and a lower rate of secondary industries,
and 2) a higher rate of the construction sector and a lower rate of the manufacturingsector in secondary industries.
The ratio of imports and exports to Gross Regional Production of Hokkaido in 2005
was 64.7% while the national average was 132.6%. The ratio of Hokkaido is the least
among the 47 prefectures in Japan. This indicates that the degree of trade openness of
Hokkaido is the lowest in Japan and its industrial structure is the type of ‘local
production for local consumption’ that depends on extra-area trades the least of all
prefectures. The food self-sufficiency ratio (based on calorie) of Hokkaido in 2007 was
197%, the highest in Japan.
The average self-sufficiency ratio in all industries of Hokkaido in 2005 was 71.1% and1)

The numbers in parenthesis indicate the same numbers nationwide.

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The Present Problem of the Hokkaid Regional Economy and a Remedy

those of primary industries, secondary industries and tertiary industries in that year were
74.4%, 46.8%, 84.3%, respectively.2) Primary and tertiary industries had higher ratios
than the average, and secondary industries had a lower ratio than the average. We would
like to say such characteristics of the self-sufficiency ratios of Hokkaido have a ‘twin
peaks shape.’ In 2005, the ratio of medical and health care, social security and nursing
care was the highest of all sectors (100.0%), construction was second (99.6%), finance,
insurance, and real estate were third (96.8%), public utilities were fourth (96.2%), andcivil services, education and research were fifth (95.3%). All but the construction sector
belong to tertiary industries. Local production for local consumption is observed in thetwin peaks of primary and tertiary industries because Hokkaido has been a food supplierand development investment has continued to depend on tax redistribution as financialtransfer from the central government, leading to expanding construction (Hokkaido
Bureau of Economy, Trade and Industry 2010, Ch.3)
Hokkaido’s interregional balance of payments (international and interregional
exports — international and interregional imports) has been constantly in the red as seenin the following data being, for instance, 2.55 trillion yen in 1997, 3.43 trillion yen
in 2005 and 1.52 trillion yen in 2007. To turn our attention to industries and sectors, it
has been in the black in primary industries and the food-manufacturing sector, but it has
been deeply in the red in machinery and other manufacturing sectors. While recent
growth of manufacturing sectors such as auto parts has increased international andinterregional exports, continuous decline of purchasing power of residents in Hokkaido
caused by a prolonged depression has decreased international and interregional imports.
As a result, the deficit in its balance of payments had temporarily been reduced to someextent. However, it has remained almost constant since the Lehman shock of 2008.
Interregional balance of payments is equal to net private saving (private
savingprivate investments) plus public financial balance (taxpublic spending).
Hokkaido’s deficit of interregional balance of payments amounts to excess private savingplus substantial public financial deficit (excess public spending). If we use thenotations S: private saving, I: private investments, T: Tax, G: government public
spending, X: international and interregional exports, M: international and interregional
imports, the macro identical equation is (XM)(SI)(T–G). Since public financial
deficit (GT) is bigger than excess private saving (SI ), then the interregional balance2)

Self-sufficiency ratio is expressed as the ratio of regional production (productionexports) toregional demand (productionimportsexports), i.e. self-sufficiency ratio(production
exports)/(productionimportsexports)1(imports/(productionimportsexports))– 115 –

M. NISHIBE

of payments (XM) can be negative. Constant deficit in the interregional balance of
payments can result in accumulated external debts without such substantial publicfinancial deficit.
But in the case of Hokkaido, its deficit is covered by the central government. That is
why Hokkaido has been long regarded as a central-dependent economy. The central
government of Japan has provided local allocation tax grants for redistribution policythat financially transfers the central government’s tax to rural local governments such as
Hokkaido. Moreover, as explained below, there has been large public spending for theconstruction sector that has been conducted by the Hokkaido Development Agency until
recently. This tendency has lately weakened due to pursuing reforms in public finance ofthe central government.
The income distribution policy in the form of tax transfer from urban areas has
contributed to the increase of income in rural areas such as Hokkaido, and it undoubtedly
helped to narrow economic disparities between both areas. However, outflow of private
funds from rural areas to urban areas and inflow of tax transfer from urban areas to rural
areas eventually bring about a negative effect on economic welfare in terms of income
and employment because public spending for infrastructure construction compared withprivate investment for manufacturing plant and equipment has much smaller ripple
effects to create employment. That is why it is significant to create investment
opportunities in rural areas in order to create employment and income (Kobayashi,1997). This might be true of the comparison between public spending in construction
and private investment in manufacturing in secondary industries, but we show a counterexample later on. More importantly, we must remember that the argument has only dealt
with secondary industries and neglected important roles of primary and tertiaryindustries in Hokkaido’s economy. The characteristic of Hokkaido’s industrial structureis that, as we have seen, primary and tertiary industries play a greater role than in the restof Japan while secondary industries play a smaller role and both primary and tertiaryindustries have higher self-sufficiency ratios.
3.

Critical Reexamination of Basic Presuppositions and Problem-Settingof Conventional Prescriptions
Given the understanding on Hokkaido’s balance of payments structure put forward,
Hokkaido has been often advised that it is necessary, in order for its regional economy to
be more independent and healthy, to redress interregional balance of payments and that,to be more specific, it should develop its secondary industries, especially manufacturing– 116 –

The Present Problem of the Hokkaid Regional Economy and a Remedy

sectors to accomplish this purpose (Hara, 1999; Horikoshi, 2008). Such arguments seemto deduce the consequences from the law of comparative advantage in international trade
theory. The law of comparative advantage states that two countries can mutually benefit
from specializing in producing the product with the most comparative advantage i.e.
having the cheapest production costs in different industries of each country and trading
those products between the two countries. Then it must be a logical consequence fromthe law to infer that it is necessary to specialize in some particular industries or sectors inorder to expand exports and gain a surplus in balance of payments. In this paper, we are
not yet prepared to give a full-fledged discussion on the validity of the widely accepted
theory first shown by David Ricardo.3) Rather here we pose some questions on its
application and presuppositions.
From the law of comparative advantage, we can say that Hokkaido should specialize
in some industries or sectors with comparative advantage, but we cannot tell that suchindustries are secondary and such sectors are manufacturing. Rather we can draw acompletely different conclusion that because Hokkaido has a comparative advantage inprimary and tertiary industries such as agriculture and tourism, it should strengthen thoseindustries and sectors. The only plausible reason why secondary industries should be
reinforced is because those industries have higher multiplier effects on other industries
and sectors. But we cannot affirm that private investments in manufacturing industry
necessarily have bigger multipliers than public investments in construction or tourism
industry.
We can show counterevidence examples of multipliers that Musha (2010) calculated
by using Kansai regional input-output table. The multiplier of Kansai International
Airport-related public investments that amounted to 1.44 trillion yen was the largest,
1.6945. That of the 1300th anniversary festival for the capital relocation to Nara as a
tourism project that amounted to 0.1 trillion yen was second, 1.5642. Finally, that of four
private investments for equipment in Osaka coastal areas that amounted to 1.32 trillion
yen was the least, 1.0522. Thus the argument that secondary industries or manufacturingsectors have high potential to create income and employment is found to be ungrounded.
Furthermore, we observe a tendency that, while the rate of secondary industries in
Hokkaido economy has been constantly falling, that of tertiary industries, particularly of
the private service and government service sectors have shown a tendency to rise. As a3)

The first argument on the law is found in Ricardo’s primary work (Ricardo, 1817). The most recent
noteworthy contribution to a new development of Ricardian trade theory has been offered by Shiozawa(2007).

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M. NISHIBE

matter of fact, such a tendency is common in many developed countries just because weare passing through a period of deindustrialization and informationization in the postindustrial socioeconomy (Drucker, 1993; Toffler, 1980). Most advice given to Hokkaido
wants to reverse the long-term trend of industrial structure as deindustrialization.
However, such an attempt is neither necessary in a post-industrial socioeconomy nor
feasible in global competition not only with other regions in Japan but also with BRICS
that have already been recognized as newly developing manufacturing centers.
We would like to examine the presuppositions of the law of comparative advantage
here. The theoretical hypotheses that are necessary for constructing the model of
economic theory in which the law of comparative advantage can be derived are: a) intranational, not international, mobility of factors of production (labor and capital), b) full
employment of factors of production, c) perfect competition in all markets. The
assumption of perfect competition is a set of many semi-assumptions such as a perfectly
elastic price, infinite number of agents as maximizers and price takers, zero entry/ exit
barriers, zero transaction costs, perfect information and homogeneous goods. These
hypotheses determine how we describe institutions as money, market, transactions andcompetition. It was once insisted that evolutionary economics should reject such
hypotheses as b) and c) (Nishibe, 2006b). That is because the market institution in reality
cannot be depicted just as the centralized price mechanism determined by theequilibrium between demand and supply shown by agents as maximizers and pricetakers, but as dispersive networks of transactions of buying and selling of differential
goods utilizing buffers such as money and credit as well as inventory of goods and labor.
Accordingly, we cannot straightforwardly agree with the trade theory with the law ofcomparative advantage underpinned by these unacceptable assumptions. But we haveproceeded with our argument up to here as if we once accepted the theory as a genuine
model. Here we would like to only suggest two problems regarding the theory of trade
theory based on comparative advantage.
The first problem is on reality and complexity. It is apparent that real competition is
dynamic as in differentiation, quality competition and innovation with regard to products
and processes, not static as depicted in the theory with price competition of homogenous
goods without any technical change. We need to consider many other factors inevolutionary complex systems. Even though it cannot be denied that interregionalbalance of payments and comparative advantage matter in the static setting, it cannot be
the only factor that we must take into consideration in evolutionary and dynamic reality.
When the enormous trade surplus of Japan with the US was criticized by the US in the– 118 –

The Present Problem of the Hokkaid Regional Economy and a Remedy

1980s, the reason why Japanese cars attracted more US customers than US cars was thatJapanese cars are not just economical but of better quality than US cars. Hokkaido had
depended on the coal mining industry until the 1960s and exported coal to other regionsin Japan so that it gained a large surplus in its interregional balance of payments. But the
Hokkaido economy was too vulnerable to the postwar transformation of energy
resources from coal to oil. We should learn from the cases that sustainability anddiversity of industries, products and institutions are quite important factors when
considering independent development of the regional socioeconomy.
The second problem is that the theory based on the law of comparative advantage only
considers prices and initial endowment of factors of production but totally neglects theinstitution of money and credit etc. The theory starts from the basic assumptions that
institutions are given without any change or modification. So we only have to endeavor
to change the current industrial structures in order to improve interregional balance of
payments ceteris paribus. It sounds as if we should try to change the contents to conformto the given containers. But we can take the opposite side and seek to change thecontainers to conform to the given contents. The significant point that cannot be ignored
here is that interregional balance of payments and industrial structure of regional
economy must depend on the differences of various kinds of institutions of tax andpolicy as well as money and finance built in national and regional economies, and that if
we can change the institutions somehow, the performances expressed as interregionalbalance of payments and industrial structures will become different or even moredesirable due to their alternations. It is at least necessary to reconsider what is given andwhat is variable without sticking to conventional ways of thinking.
In order to clarify the point in question, we may refer to Hayek’s argument on
denationalization of money (Hayek, 1990), rather than Keynes’s argument on effective
demand and macroeconomic policies. Hayek proposed to allow private enterprises toprovide the public with free choices of multiple concurrent currencies for the sake ofgetting rid of harmful effects of inflation and deflation or severe business cycles that hethought are mainly caused by the government monopoly of the issue of money. He
therefore argued that competition among private banks in terms of quality, not quantity,of money, i.e. stability of money value will prevent governments from overissuing notes
and deteriorating them in value and, if so, that naturally leads to stabilized money value.
We must understand why Hayek dared to assume a seemingly unfeasible andimpracticable reform plan where money and credit institutions are not given but variable
in order for the market economy to become more stable. Hayek wanted to prevent the– 119 –

M. NISHIBE

institution of the market from contracting due to the expansion of the institution of thestate. He remarked on the issue: “I strongly feel that the chief task of the economic
theorist or political philosopher should be to operate on public opinion to makepolitically possible what today may be politically impossible, and that in consequence
the objection that my proposals are at present impracticable does not in the least deter mefrom developing them.”(ibid., p. 17) Then he attempted to give a theoretical solution todifficult situations at the time by introducing politically impossible but theoreticallyfeasible and practicable institutional redesign and, by doing so, persuade the public thatsuch institutional design not only is theoretically feasible, but also becomes politicallypossible once they agree on the point.
In the same spirit of Hayek as an economic theorist or political philosopher, we will
pursue what is theoretically possible, but is impracticable at present, and we should not
avoid proposing a new institutional design at present so that it can operate on public
opinion to make the design politically possible. But, in order to do so, we must be awareof reality. For instance, the astonishing advancement of information and communication
technology such as the Internet and electronic money which Hayek was not yet aware ofin his time enable us to deal with money as pure information in real/virtual space andtime, so that a much wider diversity of multiple currencies including corporate,
community and local currencies have become possible at present than a few decades ago.
It would be desirable to recognize the current trend of technological and industrial
structural change and make a suitable design for platform institution of money andfinance to fit the trend of technology and industrial structure.
4.

‘Two Lost Decades’ since the 1990s in Japan and Hokkaido:

Ineffectiveness of Conventional Economic Policies
Some might think it wiser to consider the possibility of alternation of institutions only
after we tried as much as we can within the current institutions. Then, we had better
make certain in the first place that conventional fiscal and monetary policies as well as
liberalization and deregulation of various markets had been seriously attempted as means
to recover from several recessions during the 1990s and the 2000s after the collapse of
bubble in the stock and real estate markets.
Japan has experienced a prolonged depression period since the asset price bubble
started to collapse in 1990. Even though Japan as a whole suffered from several
recessions, there was a great disparity between metropolitan areas and other regions interm of the rate of bankruptcies and the rate of unemployment depending on the– 120 –

The Present Problem of the Hokkaid Regional Economy and a Remedy

interregional balance of payments and the industrial structure. On the whole, rural areas
were much more severely affected. During the 1990s, the Japanese central government
implemented enormous amounts of public spending and tax transfer to local
governments in order to boost the national economy as a whole, especially so after
1997–98 when the Japanese economy had experienced severe financial crises caused by
the failures or bankruptcies of several major private banks (The Hokkaido Takushoku
Bank, Long-term Credit Bank of Japan, The Nippon Credit Bank) and security
companies (Sanyo Securities Company, Yamaichi Securities). Additionally, we must notforget that it was during the 1990s and 2000s when deregulation in finance, food,information and aviation markets and privatization of postal and electric services
advanced rapidly, and antimonopoly policies for enhancing competition were expanded
widely. Nevertheless, such various government policies that were implemented on a large
scale during the period could have almost no significant positive effects to bring theJapanese stagnant economy back onto a growth path. The well-used phrase “two lost
decades” indicates the ineffectiveness of those policies.
In addition to such domestic issues, there were international economic problems forJapan as well. Until the 1990s, an enormous export surplus with the US had caused muchtrade friction. Foreign exchange market equipped with a floating exchange rate system isquite volatile and the tendency of appreciation of Japanese yen to other foreign
currencies, especially to the US dollar, has been observed since then. Global markets ofindustrial products and services, energy, raw materials and foods are quite unstable andeven more volatile than stock markets. This propensity of money and the commodities
market also makes it difficult for many citizens to lead stable lives because of high andvolatile prices of necessities such as oil, electricity and foods.
Here let us take a closer look at economic development in Hokkaido as it was
supported by large-scale economic aids of the national government. The government ofJapan created the Hokkaido Development Agency (HDA) in 1950 and established the
Hokkaido Regional Development Bureau (HRDB) in 1951 as a local branch to
implement public work projects initiated by the national government. Since 1952, suchinfrastructure improvements as dams, roads, ports and rivers have been promoted basedon the Hokkaido Comprehensive Development Plan. HDA was a major source of money
for public investment in Hokkaido until it was abolished in 2001. In that year, the HRDB
was reorganized as an affiliate department of the Ministry of Land, Infrastructure,
Transport and Tourism that was created by integration of four ministries in an
administrative reform carried out by the national government. Hokkaido development– 121 –

M. NISHIBE

Fig. 1. Changes in Hokkaido Development Budget Expenses.
(Source: Hokkaido Regional Development Bureau Website, http://www.hkd.mlit.go.jp/
eng/08.html)

Fig. 2. Historical change of discount rate by the Bank of Japan.
(Source: Bank of Japan, BOJ Time-Series Data Search, Key Figures at a Glance, Interest
Rates (http://www.stat-serach.boj.or.jp/index_en.html))

budget expenses increased to stimulate depressive regional economy from 1990, andreached their peak, 987.1 billion yen, in 1997; thereafter they have fallen and in 2011were less than half their peak amount (Fig. 1). It is evident that even such massive
injection of public spending in the 1990s had no drastic impacts on restoring Hokkaido
economy.
With respect to monetary policy, the Bank of Japan (BOJ) once exercised a tight– 122 –

The Present Problem of the Hokkaid Regional Economy and a Remedy

money policy by pulling discount rates up until the 1990s for fear of inflation and thestrong yen, however, BOJ thereafter continued an eased money policy until the late
1990s. Zero interest rate policy has been kept from 1999 to the present with twointerruptions and quantitative easing policy has been kept from 2001 to 2006 (Fig. 2).
The zero interest rate and quantitative easing policy have not had any significant impacts
on successfully reviving the half dead Japanese economy.
The Japanese government thus could not bail out the country in the two lost decades
even though it has spent considerable efforts on fiscal and monetary policies. It seems
necessary to seek other methods of policymaking than what has been done so far in orderto tackle such an essentially structured problem caused by globalization at the present.
5.

Evolutionist Institutional Design as an Alternative Policymaking

MethodIn order to find a way out of the policymaking impasse of the past twenty years in Japan,
we have proposed an evolutionary institutional design to which basic ideas and conceptsof evolutionary economics apply as a new way of bottom-up policymaking fromparticipants; it differs from conventional institutional designs based on constructivist or
operationalist ways of top-down policymaking from central authorities (Nishibe, 2002,2007).
Evolutionary economics has two basic concepts: ‘replicators’ and ‘interactors.’ On the
one hand, replicators in the socioeconomic evolution that correspond to genes or DNA in
biological evolution are institutions that consist of a bundle of “ifthen ...” rules sharedby a relatively large number of agents. Such institutions constituted as rules are classified
from the viewpoint of agents into ‘internal rules’ (game strategies, frames of cognition,
psychological biases and behavioral routines) and ‘external rules’ (game rules, laws,
conventions, social norms and morals). On the other hand, interactors — causal agentsthat correspond to organisms and groups or populations in biological evolution — areindividuals or groups of individuals who execute rules (that is, they act according to bothinternal and external rules) and interact with themselves and others as well as external
environments. Then we can visualize our socioeconomy as the coexistence of a diverse
array of rules and institutions that form mutually complementary and substitutive
relations. We call such a dynamic system the ‘institutional ecology.’
Here we introduce the micro-meso-macro loop model to describe dynamic charactersof an evolutionary system of institutional ecology (Fig. 3). Individuals as interactors on
the micro level have their own replicators composed of internal rules such as instincts,– 123 –

M. NISHIBE

Fig. 3. Micro-meso-macro loop.

characters, habits, routines, motives and value. Such platform institutions as money,
accounting, company and laws are regarded as basic replicators (rules) located on themeso level because, as outer institutions, they affect such inner institutions as common
value, moral and consciousness shared by a certain number of micro agents on the meso
level, and, on the other hand, determine such internal rules within micro agents as theroutinized frames of cognition and habitual rules of decision/action on the micro level sothat agents can behave based on such frames and rules. In short, platform media as outerinstitutions on the meso level basically regulate how agents share their morals, values
and beliefs on the meso level and behave and interact with one another on the microlevel. Platform media mediate dual directional causal relations between socioeconomic
performances and patterns on the macro level and behavior of agents based on internal
rules on the micro level.
Conventional approaches for institutional design such as mechanism design or market
socialism presume that internal rules of agents on the micro level are all fixed because
the internal rules are only understood as optimality principles. So those approaches only
focus on any adaptational and unambiguous changes in behaviors of individuals or firms
based on the maximization of utility or profits in response to the change of institutions as
external rules. In contrast to such mechanical understanding of agent behaviors inconventional views, evolutionist institutional design thinks of internal rules on the micro– 124 –

The Present Problem of the Hokkaid Regional Economy and a Remedy

Fig. 4. Classification of four types of socioeconomic policies.

level as variable, and tries to consider the effects both on performance and patterns
overall at the macro level and on internal rules at the micro level; these effects arise
simultaneously from changes in the policymaking regarding external rules embodied inplatform institutions (e.g., media such as money) and from changes in accounting rules
commonly held at the meso level.
Figure 4 classifies socioeconomic policies into four categories along two axes ofchanged/unchanged for internal or external institutions. Here, evolutionist institutional
design corresponds to 4) media design where both external and internal institutions arechanged. In contrast, constructivist institutional design is understood as 3) mechanism
design in which only external rules are changed, and operationalist institutional design isdepicted in 1) conventional macroeconomic monetary and fiscal policies where neither
rule is changed. We can see 2) change of internal rules or consciousness in ethicalconsumption, social investment and corporate social responsibility. These are allsocioeconomic policies, but the focus of evolutionist institutional design is especially on
media design based on evolutionist institutional design (Nishibe, 2010).
Platform media are strategic targets for evolutionary institutional design since anychange of rules in platform media can simultaneously affect both micro behaviors ofagents and macro performance-patterns of socioeconomy. If we alter platform media as
external institutions on the meso level, that can affect agents on the micro level in twoways, viz. it can change agents’ behaviors as output in response to alternation of external
rules based on the same internal rules, and it can change agents’ ways of behaviors as– 125 –

M. NISHIBE

internal rules such as routines, habits, motives and value.
6.

Proposal of a Remedy to Create Hokkaido Community Currency: LETS

DO Scheme
Community currencies (CCs) as unique integrative communication media with bothproperties of money and language have the capability of simultaneously changing bothbehaviors as output and internal rules of agents in order to countervail the effect ofexisting national currency and banking institutions as the basic replicators for
propagating global capitalism (Nishibe, 2012).
Globalization can be interpreted as the historical tendency for Market to expand, andfor Community and State to shrink qualitatively and quantitatively over the last several
decades. Many visible phenomena have verified the existence of the trend. For example,
most towns and villages have the same problem of declining shopping streets in addition
to the problems of depopulation and population aging caused by the falling birthrate andmigration of young people to urban areas where they find more job opportunities.
Although motorization facilitated the ability of rural and small-town residents to go
shopping in supermarkets or shopping malls in larger towns, it also gave rise to‘shopping refugees,’ the elderly who do not drive cars and cannot go shopping far fromhome. When local shopping streets disappear, so do many invisible community functions
that they serve, such as street cleaning, security, mutual aid, childcare and local festivals.
As a result of the prosperity of global economies, the decline of local economies has
accelerated and the living environments of all residents have deteriorated as well.
If the people under such circumstances can create their own local money that stays in
the community and circulates there, local economies could become more active andrelatively independent of the influence of national and global economies. This would
encourage forming sustainable and recycling-oriented local economies of ‘local
production for local consumption,’ which is the ultimate aim of CCs introduced as‘economic media.’
We have already seen that the usual advice for Hokkaido is to reduce deficits ininterregional balance of payments by encouraging more industrialization in order to seek
macro economic growth and increase GDP per capita, although the present industrial
structure indicates that primary and tertiary industries are main and more self-sufficientthan secondary industries. Then we believe that it would be wiser to expand primary andtertiary industries than to nurture secondary industries. To put this more concretely, we
should bolster industries of agriculture, forestry, fisheries, food processing, information,– 126 –

The Present Problem of the Hokkaid Regional Economy and a Remedy

tourism and environment and break the previous dependence on the central government
in terms of finance and social security so that we can create a truly independent economy
that puts greater importance on mutual help and self-help than public aid.
But if the deficits of interregional balance of payments remain the same, it will resultin a spillover of currencies out of the region. Hokkaido has kept a high level of private
net savings since the 1980s, but they went to such metropolitan areas as Tokyo andOsaka, and were not used for private investments in Hokkaido. We should utilize private
net savings within the region but it is difficult under the current institutions because there
is no obligation for banks to lend money locally.
If we set up a new institutional design of money and introduce a CC only for use
within Hokkaido, rather than just impose some regulations for local loan on banks, and
we all make efforts to circulate it mainly within primary and tertiary industries that havealready kept high self-sufficiency ratios, it would enhance the inner circulation ofcurrencies and heighten the economic multiplier effect of investment that would make it

Fig. 5. LETS DO Scheme for Hokkaido Community Currency.
4)This plan was initially proposed (Nishibe, 2001) and improved through discussion with a project
team composed by local government officials of Hokkaido.

– 127 –

M. NISHIBE

possible to create an environmentally sustainable and recycling-oriented scioeconomy. It
would also induce local residents and tourists to participate more in building independent
local economies with local production for local consumption as well as social capitals
and communities in Hokkaido.
Here we propose a comprehensive plan for Hokkaido Community Currency (HCC)
based on the aforementioned evolutionist institutional design.4) The plan does not seek
Hokkaido’s political independence as a nation-state from Japan, nor establishment of asingle exclusive currency by the local government of Hokkaido. It only requires as anecessary condition legitimate free issue of various types of currencies. Accordingly, we
assume coexistence of such multiple concurrent currencies as community, electronic,
corporate and national currencies. The aim of the plan is to vitalize regional economies
and communities in Hokkaido by growing regional intra-circulation of currencies. In
order to accomplish the goal, only several percent of its gross regional production (about
20 trillion Japanese yen) needs to be circulated by CCs.
A more practical plan that we present here is called the LETS DO Scheme (Fig. 5).
The system adopts the LETS (Local Exchange Trading System), which is the mostfrequently used account-type CC in developed countries. The issuing body does not issue
any paper currencies or notes in LETS. Participants open their accounts with an initialbalance of zero. Once a participant offers any goods or services, for example, old books
or babysitting, to another participant with a certain agreed price, such as, 10 green
dollars, the transaction value is written as credit (plus 10 green dollars) on the seller’s
account and written as debit (minus 10 green dollars) on the buyer’s account. This meansthat buyers can create a necessary amount of money whenever they make transactions
unless they exceed the debit limit that is usually set up in order to prevent eachparticipant from accumulating too many debits. At any point, some participants have acertain amount of credits in their accounts and others have a certain amount of debits, but
the summation of all participants’ accounts equals zero. This zero sum principle clearly
expresses the reciprocal relations of participants within the community that all
participants form.
The name of HCC and its value unit is taken as ‘DO’, from the last syllable of‘Hokkaido.’ LETS DO means “Let’s do something together” to potential participants.
The CC is expected to create a new community of Hokkaido by conveying suchmessages with ethics and value to people. It is crucial to understand that ‘Hokkaido’
implies not only a geographical region and administrative district but also a communityof interest concerning ‘Hokkaido.’ Then residents or citizens of Hokkaido as well as– 128 –

The Present Problem of the Hokkaid Regional Economy and a Remedy

those who are interested in Hokkaido in some respects can be participants of the project.
For example, tourists who visit Hokkaido, gourmets who want to buy certain agricultural
products of Hokkaido, and those who are originally from Hokkaido and live away inmetropolitan cities are all conceived as supporters of Hokkaido and eligible participants.
Participants are not only individuals but also groups and organizations such ascompanies, cooperatives, trade unions, chambers of commerce, and governments as longas they open accounts and trade any of their goods and services by CC. Some parastatalorganization is engaged in such administrative work as membership, registry and policy
making in a neutral and fair manner.
The exchange rate between DO and yen is basically fixed as 1 : 1. But a certain
discount for DO is available to encourage people to exchange yen and use DO. For
example, the exchange rate would be 1.1 : 1, that is, there is a 10% discount rate for the
first year. But if the policymaking body keeps such a discounted rate fixed for aconsiderably long time, it would have a positive impact on Hokkaido economy bystimulating exports from and investments to Hokkaido. Adopting a variable or floating
rate system would be another option.
The present plan sets conditions that nonprofit organizations (NPOs) are only
permitted to exchange DO for yen and individuals and private enterprises are bothprohibited from doing it. This is because in doing so we can prevent DO from flowing
out of Hokkaido so that its economy can be stabilized to some extent due to its
detachment from global economies frequently stuck with turbulences of foreignexchange rates and other necessary commodity prices caused by speculative trading in
financial and derivative markets. Another reason for the condition is that it also provides
NPOs with fund raising capacity in yen. This is an embodiment of the idea of supporting
NPOs that always run short of operating funds.
Figure 5 shows that LETS DO Scheme is composed of two different schemes: the‘LETS DO fund’ and the ‘Community Way.’ The LETS DO fund is a scheme forsupporting NPOs in which participants select an NPO that they would like to donate their
yen to. The NPOs issue DO equivalent to their received yen donation and pass it to theparticipants. Each NPO takes the role of being moneychanger between yen and DO or,
expressed differently, a money supplier of DO. In order to become receivers of such
donations, NPOs must become highly acclaimed for socially significant but nonprofitablejobs. Accordingly, NPOs from various themes in welfare, environments and cultures
would compete with each other for such funds.
The Community Way is a scheme for forming smooth currency circulation among– 129 –

M. NISHIBE

individuals, private firms, NPOs and governments, without hoarding, by connecting noncommercial transactions (donations, volunteer work and mutual aids) and commercial
transactions (shopping by local shoppers and stores). Individual participants conduct
volunteer work so as to receive DO or they donate yen to any NPO they choose andreceive DO. They use received DO for purchasing merchandise from shops and firms.
Local shops and firms receive DO from their customers as part of the sales, and use thereceived DO for their purchase from other local shops and firms, or for donations or
activities for corporate social responsibility. We expect from Community Way thatturnovers of currency circulation will increase and Hokkaido’s regional economy can
expand faster by multiplier effects.5)
The LETS DO Scheme is not just an economic system using CCs to vitalize theregional economy. It has the possibility of being a social and political system using CCs
to get individuals to participate in the voting process of assessing activities of NPOs, tomake NPOs become more economically feasible and sustainable, to make local shops
and private firms become more socially responsible, and lead the government to becomea more bottom-up coordinator rather than a top-down policymaker. In short, the LETS
DO Scheme as platform media aims at being basic replicators as an external institution
on the meso level from which both associative agents at the micro level and a‘coopetitive’ — cooperative and competitive — market socioeconomy on the macro levelcan simultaneously emerge and self-organize themselves as phonotype manifestation of
LETS DO genes.
This is the evolutionist institutional design for a socioeconomy for promoting
industrial diversity and local production for local consumption. We think highly of foodsufficiency, nature conservation and social security services for aging population withfewer children that can be provided mainly by primary and tertiary industries. We may
say that the LETS DO Scheme attempts to not only accomplish economic growth anddevelopment in terms of the GDP and interregional balance of payments evaluated inJapanese yen, but also to improve alternative affluence indexes such as the GPI (Genuine

5)

In an experiment on a CC in Tomamae Town, Hokkaido, the velocity of the community currency
with the ‘Double-Triangle Method’ (where commercial transactions and non-commercial transactions
become mutually complementary in successive circulation of money) was found to reach 5.1 (firstexperiment, Oct. 2004 to Feb. 2005) and 3.5 (second experiment, Aug. 2005 to Jan. 2006) turnovers
per year, which respectively correspond to about 6–7 and 4–5 times that of the legal tender at the time.
These data support our claim that the CCs have significant economic effects in vitalizing local
economies (Nishibe, 2004, 2006a; Kichiji and Nishibe, 2008).

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The Present Problem of the Hokkaid Regional Economy and a Remedy

Progress Index), HDI (Human Development Index), GNH (Gross National Happiness) orother subjective satisfaction and creativity indexes such as RCDI (Regional Creative
Development Index).6)
It would be desirable here to add a few words with regard to feasibility of LETS DO
Scheme. It does not aim at a complete self-sufficient economy with exclusive local
production for local consumption within Hokkaido. It is absurd to imagine that acompletely self-sufficient economy is feasible in a highly developed international
division of labour and knowledge in today’s age. But we cannot confirm according to thelaw of comparative advantage that the regional economy that specializes only in aparticular sector such as automobile production or nuclear power generation with a large
surplus in the interregional balance of payments but low self-sufficiency ratios ofprimary and tertiary industries is most desirable. Such an economy has plenty ofmonetary wealth, but lacks necessities and diversity. Such an economy must be fragile
once it is hit by a major natural disaster or a catastrophic man-made accident. We cannot
neglect such kind of risk in a world full of radical uncertainty, that is, the realevolutionary and complex world.
“Local production for local consumption” is nowadays a very popular slogan forethical consumers who are strongly conscious of their health care and naturalenvironments, but it is completely contradictory to what standard economics equippedwith the law of comparative advantage tells us. We have not so far seen any strong theory
for desirability of local production for local consumption, but evolutionary ways ofthinking have a comparative advantage to answer the question because they enable ourthinking depart from the rationality and equilibrium of standard economics. In
evolutionary economics, the economy with self-sufficiency ratios in many industries isinterpreted as a system with loose connections to each other as well as external
environments and the whole set of economies as such can be depicted as an autonomousand dispersive network just like an ecological network. The merits of those systems andnetworks lie in their capability for evolution, viz. self-organization, emergence,robustness, flexibility and diversity that evolving systems and networks show (Nishibe,
2006b). There is much left to be considered on the issue, but we can still appreciate local
production for local consumption.
6)

We as a team of the Hokkaido Institute for Future Advancement invented the RCDI as a new index
for indicating regional creativity (Hara and Nishibe, 2007). It is a sort of satisfaction index calculated
as weighted averages of accumulated points classified for human capital, social capital andenvironmental capital with regard to each city or region.

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M. NISHIBE

Hokkaido has higher self-sufficiency ratios in primary and tertiary industries andlower self-sufficiency ratio in secondary industries, the earlier mention twin peaks shape.
Because automobiles, computers and many other electrical appliances are global trade
products of an international division of labor, they cannot be bought by HCC, but there
are not necessities but rather luxury items. Since primary industries for food and tertiaryindustries for basic services are already highly self-sufficient, it would be possible tomaintain daily life with DO in Hokkaido. If participants can trade with each other or sellto the electric company surplus electricity that is self-generated locally by renewablesolar, wind and water energies, self-sufficiency and sustainability of the Hokkaido
economy would be improved and their daily lives would become more tolerant toexternal shocks such as rapid appreciation of oil process. Construction projects of local
electric generators would be good opportunities for private investment where net private
saving in Hokkaido should be utilized so that it can bring about endogenous developmentby its ripple effects. If such projects can also come to be dealt with using DO,
commercial transactions using DO might greatly expand. Creation of HCC and use of
the LETS DO Scheme is thus a feasible and practicable plan to improve sustainability
and realize autonomy of the Hokkaido socioeconomy.
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