Proposal Outline

Creation of a Next-generation Society and Future of Capitalism —Responding to the progress of digitalization while feeling a sense of crisis
Recognition of issues

14⚫ Recently, there has been a rise in anti-globalism, national particularism, and populism mainly in Western developed countries, including theU.K.’s decision to leave the EU and the birth of the Trump administration in the U.S. Behind these movements, there is increasing skepticism
about modern capitalism, which has widened and fixed economic disparity. Meanwhile, some emerging countries are rapidly increasing theirinternational competitiveness by adopting national capitalism and working on strategic efforts to create innovation through cooperation
between the public and private sectors.
⚫ Under these circumstances, Japan is facing a crisis situation that may lead to a further decrease in international competitiveness in the future.
Specifically, various disparities have been exacerbated, and rigid social systems and practices have interrupted the creation of innovationand the spread of technology.
⚫ In the rapidly changing global economy due to accelerating globalization and digitalization, conventional capitalism is going to reach a
breaking point. In this situation, we, the Future of Capitalism Committee, propose the direction to be pursued by Japan and measures to betaken by the national government and companies in terms of the appropriate form of capitalism.

March 2019
Future of Capitalism Committee,
Kansai Keizai Doyukai(Kansai Association of Corporate Executives)

Proposals

How should the national government and companies address new trends brought by global capitalism?
Four questions to unlock the future of capitalism(1)(2)

What value should be emphasized to modify global capitalism?
What factors of the unique corporate and social culture, which has been cultivated in Japan, should be used tocontribute to the world?

(3)

How should the national government respond to various changes that are taking place at a dramatic speed?

(4)

How should Japan address the existing economic disparity, which is behind populism and national particularism?

Global economy and various types of capitalism

2

Proposal 1(1) Changes in capitalism and globalization

Companies

Nationalgovernment⚫

Modern capitalism was established as a result of the Industrial Revolution in the U.K. It has developed, changing its nature in association withthe spread of mass production techniques and the transformation of industrial relations triggered by the Great Depression in the U.S. in theearly 20th century.
⚫ The Bretton Woods system, which was established after WWII to provide a stable supply of funds on a global scale, collapsed due to a shift
in the floating rate system in 1973. As the relaxation of financial regulation progressed mainly in Western countries in the 1980s, international
financial markets expanded rapidly. From the 21th century, financial globalization progressed significantly in developed countries as a resultof increasing speculation in capital markets. This led to a financial crisis and a debit crisis that rippled around the world.
⚫ After these changes in capitalism, attention is currently focused on the various issues of a capitalist economy.

Adhere to capitalism based on
fundamental values, including
respect for freedom, democracy,
and human rights and the ruleof law, and propose it to theworld.

(2) Various types of capitalism

Companies

Proposal 2

The relaxation of financial regulation promotes economic freedom, accelerating theflow of people, things, and funds across the world. This enables capitalism to expand
globally beyond national borders.

Global Capitalism
Anglo-Saxon capitalism

Rhine capitalism⚫ Market-based capitalism that places⚫ Emphasizing coordination with various

priority on maximizing the profit ofshareholders in the short term

stakeholders outside markets

Companies should identify
signs of changes andimplement dynamic
management, taking advantageof Japanese-style business
management.

State capitalism⚫ Realizing economic growth under theinitiative of the national government
through a strong connection between
politics and the economy(3) Characteristics of capitalism in Japan⚫

The uniqueness of capitalism in Japan, which has been created through historical changes, is pointed out.
In Japan, the characteristics of the wartime economic system, which was formed during WWII, remained unchanged after the war.
This enabled Japan to achieve high economic growth.
⚫ Meanwhile, various issues were identified in the course of the formation of global capitalism in the 1990s.
⚫

(4) Movements based on recent environmental changes⚫

Some people insist that capitalism should be modified, taking into account the progress of digitalization and social issues. The modification ofcapitalism, which is proposed from the perspective of global trends or from perspectives unique to Japan, is attracting attention as new trends
in the economic system.

Public interestcapitalism

Digital capitalism

Satoyama capitalism

The national government
should urgently implement
policies that contribute todeepening corporate
governance reforms, using
digital technology, and creatinginnovation.

Sustainable capitalism

Achievements and issues of global capitalism—How to address new trends in capitalism

3

What global capitalism has brought us⚫

NationalgovernmentProposal 3

The achievements and issues, which have been brought by global capitalism, which is affecting the world economy, are shown
below. New trends have emerged from different perspectives, and it is questioned how Japan can address these movements.

Achievements

Issues

Proposal 4

Growth of the entire world
economy(Accumulation of massivewealth)Development of emerging
countries

Low/stagnant growth ofdeveloped countries

Expansion of economic
disparity and inequality /Fall of the middle class

Reduction of gap between
nations

Expansion of technologicalrenovation and innovation

Dramatically acceleratedchanges in markets,technology, and society

Rigid social systems, legal
restrictions, and businesspractices

The progress of digitalization has caused the birth of digital capitalism.
In a situation where technological singularity is expected to occur inthe long run, movement toward digitalization may expand rapidly
around the world and dramatically change capitalism itself.

The expansion of economic disparity and the fall of the middle classhave boosted support for national particularism and protectionism andhave led to further focus on policy management that is against thetrend of globalization. This has caused conflict between conventional
global capitalism and national particularism.

There has been a relative increase in the influence of countries that have achieved dramatic economic growth by adopting national capitalism andworking on strategic efforts to create innovation through cooperation between the public and private sectors. Meanwhile, the growth of developed
countries that have adopted global capitalism has remained low or stagnant. Under these circumstances, there has been an increase in conflictand competition for dominance between national capitalism and global capitalism.

Companies

National
government

Advance efforts to reduce
excessive economic disparity.

5⚫ Under the banner of national particularism, the U.S., which has led the world economy, is committed tocompeting with China for dominance. In this situation, Japan has to take the initiative in showing theworld its intention to stick to fundamental values.
⚫ Under the circumstances where digital capitalism is increasing its presence, the national government
and the private sector need to devote all their energies, from their respective positions, to establish aneconomic system for a new era based on fundamental values.
⚫ It is expected that Japan will play a stronger leadership role in the G20 Summit to be held in Osaka inJune 2019 on behalf of nations that focus on fundamental values.
⚫ Like the Omi merchants who ran their businesses in the spirit of sanpo-yoshi, which meant “good forthe buyer, good for the seller, and good for society,” companies from the Kansai region have valued abusiness approach aimed at pursuing both profits and social contribution. Their business approach isstill effective in today’s society. Meanwhile, it is important for companies to go back to a long-term
perspective, which is an advantage of Japanese-style business management, in order to respond tonew trends in capitalism. It is also crucial to actively promote efforts to achieve SDGs through corporate
activities and to see it as their business to resolve social issues to contribute to diverse stakeholders.
Through these activities, they should redefine and implement a new version of the principles of sanpoyoshi that fits with the times.
⚫ Promote efforts for start-ups to resolve social issues, including creating a venture ecosystem that
supports innovation.
⚫ Facilitate the active use of technology to quickly identify signs of changes in a turbulent economy andimplement dynamic business management. To realize this, it is necessary to develop human resourcesthat can adapt to the new era⚫ Show the world how a sustainable society and a sustainable economic system should be and what
dynamic business management is like at Expo 2025 Osaka-Kansai to be held in 2025.
⚫ To realize Japanese-style business management, it is necessary to review systems that may promote a

focus on short-term profits and shareholder profits, including systems that make it obligatory to release
quarterly results and place an excessive focus on specific managerial indicators, such as ROE. It isalso important to advance truly substantial corporate governance reforms.
⚫ The national government should speedily develop an environment that supports companies’ active
efforts to develop technology and create innovation so that Japan will not fail to follow global trends,
where digital capitalism is expanding at a dramatic pace. It is also important to create an educationalsystem and environment that responds to digitalization. Through these efforts, it is necessary toincrease competitiveness between countries.
⚫ It is necessary to accelerate international cooperation, including the establishment of a system for theData Free Flow with Trust, which is proposed by the national government, using the opportunity of theG20 Summit.
⚫ Regarding various disparities in Japan, the national government and companies should advance

continuous and multiple efforts to reduce excessive disparities in the policy fields of employment, labor,
medical care, social security, education, and regional revitalization.
⚫ In particular, companies should have a strong awareness of disparity issues, while working to deepen
the principles of sanpo-yoshi. They should also further promote efforts, through their business activities,
to resolve social issues that may become factors for disparity.

Conclusion⚫ Although capitalism has thus far developed through repeated modification in accordance with the times, the progress of digitalization requires

further change to capitalism. In this situation, it is necessary to make society-wide efforts to respond to changes in capitalism, keeping in
mind “dataism,” which is foreseen to arrive in due course.
⚫ The economy is highly influenced by the social system. The progress of digitalization has promoted the diversification of ways to obtain anddisseminate information and participate in politics and of individual values as well as the destabilization of politics. To design a desirable
economic system, we need to deepen discussions on the appropriate form of democracy on a nation-wide basis in the future.