Annual Review 2021

Main Developments in Political Economy in FY2021

16 articles have been selected for the Annual Review 2021 from the six issues of the past year.
#237 May/June 2021 Issue#238 July/August 2021 Issue#239 September/October 2021 Issue#240 November/December 2021 Issue#241 January/February 2022 Issue#242 March/April 2022 Issue

https://www.jef.or.jp/journalEditorial Committee Members
Mohan Gopal
Representative Director, Art of Living Japan

Mohan Gopal is an IT industry veteran in Japan for over 30 years. His
past positions include Japan Country Manager for Tata Infotech andfor Covansys, CTO of Camel International Group, Global Sales
Enablement Leader for Japan at Hewlett-Packard Enterprise andProduct Marketing lead at Sybase. He has also been a business
communications coach and is currently a university visiting faculty.
He is a volunteer with the Art of Living Foundation, an international
NGO promoting yoga and peaceful thinking. He actively presents
his views on varied topics including business, culture history andinternational relations.

Nobuo lizuka
Professor of Department of Economics, Kanagawa University

Having worked for the Nihon Keizai Shimbun (Nikkei) and theJapan Center for Economic Research for more than 20 years as ajournalist and an economist, Nobuo lizuka is one of the mostcredible economists and commentators on the short-term outlook
for Japanese business and economy. His economic analyses arealways based upon his sharp, intuitive observations of businessdata. He is also working as a research director at the Tokyo
Foundation for Policy Research.

Ken Karube
Journalist & Professor of Teikyo University

Ken Karube was a former executive writer for Tokyo-based wire
service Jiji Press, which he joined in 1979 after graduating fromWaseda University. From 1992 to 1996, he was a correspondent inWashington DC and from 2004 to 2009 he was chief of the Washington
and New York bureaus. Before taking the executive writer’s post, he
was deputy managing editor at the Tokyo head office (2010-2013).
Among his books are Failure of Economic Policy Management (1999),
The Bubble Economy (2015) and Japanese Bureaucrats with their
Abenomics (2018).

Sota Kato
Professor of International University of Japan & Executive
Director of the Tokyo Foundation for Policy Research

After working for the Ministry of Economy, Trade and Industry fornearly a decade, Sota Kato started to pursue an academic careerwith Japanese universities and think tanks such as the International
University of Japan, the Research Institute of Economy Trade andIndustry (RIETI), and the Tokyo Foundation for Policy Research.
Though generally considered a political scientist, his notablestrength as a researcher lies in an interdisciplinary and quantitative
approach to economics and politics. His expertise makes him asought-after commentator on the Japanese political scene.

Long Ke
Project Professor of Global Center for Asian and Regional
Research, University of Shizuoka & Senior Fellow of the Tokyo
Foundation for Policy Research

Born in China and having studied economics at Nagoya University
in Japan, Long Ke is a distinguished economist and opinion leader
on the Chinese economy in the Japanese policy researchcommunity. He has long been an advocate of political reform in
China as a key to achieving economic reform in the country.

Keiichiro Kobayashi
Professor of Department of Economics, Keio University

Keiichiro Kobayashi has experience in the economic policy-making
process as a former government official at the Ministry of Economy,
Trade and Industry. His interest in economic research led him to join
RIETI and pursue an academic career. He has been an active
commentator on economic policy issues, in particular fiscal andmonetary policies, such as how to eliminate non-performing loans
after the bubble economy in Japan. His current interest covers
areas such as innovation and income inequality.

(Listed in alphabetical order by surname as of April 2022)

Taizo Tsuboi
Director, Planning and Coordination Division, research Planning
Department, Institute of Developing Economies-JETRO

Currently, he is in charge of general affairs, research planning andpublic relations at Institute of Developing Economies (IDE-JETRO),
one of the largest public research institute in the field of social sciencesin Japan.
In addition to the experience at the IDE-JETRO, he had worked as
Director in charge of policy and research, Invest Japan Department(2017-2019) as well as Director of the Investment Team, JETRO
London (2010-2014).

Kazumasa Oguro
Professor of Department of Economics, Hosei University

Having worked for the Japanese Ministry of Finance for several
years, Kazumasa Oguro became deeply interested in academic
research on the macroeconomy and public finance. He joined theFaculty of the Institute of Economic Research at Hitotsubashi
University and later moved to Hosei University. He is one of themost active advocates of fiscal reconstruction, including a
consumption tax hike to reduce the cumulative budget debt of theJapanese government. He is a first-class analyst of Japanesemonetary policy in the international context as well as the global
economy overall.

Sanjeev Sinha

SBI Securities, Executive Officer - Shikkou Yakuin, Founder &President IIT Alumni Japan
Graduating from India's top university, IIT, Sanjeev first came to Japan
contributing to the formation of Mobileye, a world leading AI company.
Subsequently working with Goldman Sachs, Mizuho, UBS and as CEO
of Tata Asset Management and TATA Realty and Infra PE Fund inJapan, he specializes in AI and Finance. He has been a visiting facultyat the University of Tokyo, Member of AI Committee at GoJ and anadvisor to Japan Railways, various Ministries and others. He has
authored 4 books from leading publishers like Nikkei and Kodansha.

Mukesh Williams
Professor, Soka University & Visiting Faculty, Keio University

Mukesh Williams is a university educator, media writer and poet. He
has taught modern literatures, media studies and cultural history at
St. Stephen's College Delhi, Soka University and Keio University
Tokyo. He is presently advisor to the South Asia Research Center,
Soka University. He has conducted seminars on global cultures andcounseled Japanese universities on academic exchange and PR
strategies.

Nariyasu Yamasawa
Professor of the Faculty of Management at Atomi University

Nariyasu Yamasawa is a professor of the Faculty of Management at
Atomi University. He worked for the Nihon Keizai Shimbun (Nikkei),
the Japan Center for Economic Research, and is former director of
the Statistics Commission Office, Ministry of Internal Affairs andCommunications.

Jillian Yorke
Interpreter & Translator

Co-author of several books, Jillian Yorke worked for the Public
Relations Office, Minister's Secretariat of the Ministry of Economy,
Trade and lndustry in Tokyo as an English editor and checker for
more than a decade. She now lives in New Zealand, where she iscurator of the Japan Library: Pukapuka, as well as a freelance
writer, translator, and interpreter, and often visits Japan.

Introduction
By Naoyuki Haraoka
Throughout FY 2021, the fight between the Covid-19 variants and vaccines has been
continuing. In February 2022, we do not know yet its outcome. With thousands of new daily
infections from Omicron, we do not yet know how we will exit from this global pandemic. In
the second year of the pandemic, FY 2021, we are beginning to see what the shape of the
post-pandemic world will look like. It is certainly built on digital technology and a digital
economy will have consequences. We could take note of the social and economic impact ofdigital technology even before the pandemic, but it is true that the pandemic has increased the
speed of the change with society’s growing dependence on digital technology. Teleworking, a
new working style established during the pandemic, is one example.
Digital technology is certainly one of the most promising areas of innovation. Assuming that
economic growth is the sum of the growth of the labor force, of capital and of Total Factor
Productivity (TFP) – a measure of the contribution of technological innovation to the economy– we cannot expect high growth in the labor force among developed nations due to their aging
populations, nor high growth of capital investment as capital equipment has already been
sufficiently accommodated and thus technological innovation will be key enhancing economic
growth in developed nations. Under the pandemic, has innovation progressed or ben stimulated?
As challenges emerge, will innovation be accelerated? These are key questions to be tackled at
this time. Vaccines in the war against the Covid-19 variants are certainly the most valuable
innovation not only for containing the pandemic but also for leading us to new possibilities incontaining other diseases. Innovation in digital technology has been surging during the
pandemic to maintain our economic activity with much less personal contact in business.
It is true that we are in the midst of a great structural change in the economy. Evolving
capitalism may indicate that our market-oriented economy is facing various challenges and willneed to adapt to social concerns such as income inequality, supposedly a source of political
populism. But it is also worth taking note of the effectiveness of market functions andmarket-oriented policies in our economy. Free and open competition will still play a key role insustaining economic growth. We have challenges to peace and prosperity ahead, geopoliticaluncertainties and global climate changes, in addition to rising income inequality. But it is still
important to pursue a rules-based international trading system in which free trade is theprincipal goal to be pursued in enhancing total social welfare.
The US-China confrontation had already emerged before the pandemic and has now been
elevated into a struggle for global hegemony between democracy and authoritarianism. This
conflict is a menace to countries’ national security and in globalized business where security andthe economy are closely linked through trade and investment in sensitive technology sectors, it
has ended up raising the need for clear rules on trade and security. This means that in such

conflict between political systems, the biggest challenge for businesses is a rules-based
approach as the only solution. Upgrading the Free Trade System will have to be started at thishistorical turning point.
Global climate change is another challenge to humanity in need of a solution. How to achievea zero carbon emission economy in 2050 will need to be examined from different perspectives –energy, economy and the environment. The roadmap to zero carbon emissions will not be asimple one but must be a solution consistent with reality.
Overall, in FY 2021, we started to examine solutions to these issues and challenges rather thanjust indicating them by analysis.
We hope our solutions will have productive responses from readers and subsequently
contribute to the formation of more effective solutions. In this light, we have selected thefollowing articles from the six issues of the past year as examples of the main pillars of ourwork in FY 2021.
1. Capitalism Evolving to Reach Solutions for Current Challenges, Successful inStrengthening Merits
1) Interview with Dr. Jonathan Haskel, Professor of Economics, Imperial College Business
School, co-author of the book Capitalism Without Capital “What Does ‘Capitalism Without
Capital’ Look Like?” by Japan SPOTLIGHT (May/June 2021 Issue, #237, Cover Story 2)2) Interview with Prof. Fuhito Kojima, Director of the Market Design Center, University ofTokyo “Economic Theory Supplementing Price Mechanism” by Japan SPOTLIGHT(May/June 2021 Issue, #237, Cover Story 5)
2. Innovation – a Solution for Activating the Economy
1) Interview with Larry Clark, Managing Director of Global Learning Solutions at Harvard

Business Publishing Corporate Learning “A Crisis Could Provide Ideal Conditions for Deep
Innovation” by Japan SPOTLIGHT (July/August 2021 Issue, #238, Cover Story 2)2) Interview with Dr. Yo Iwami, CEO of MedPeer “Collective Intelligence from IT to Support

Doctors & Help Patients – the Story of Japanese Healthcare Venture MedPeer” by JapanSPOTLIGHT (July/August 2021 Issue, #238, Cover Story 4)3) Interview with Renee Graham, Chairwoman of the APEC forum Policy Partnership on

Women and the Economy “APEC: Driving Innovation & Female Entrepreneurship” by
Japan SPOTLIGHT (July/August 2021 Issue, #238, Cover Story 9)4) “Digital Asia: Responding to Challenges from GVCs Digitalization, US-China Decoupling& the Covid-19 Pandemic” by Lurong Chen (Nov./Dec. 2021 Issue, #240, Cover Story 2)5) “Asia in the Global Dynamics of Embracing the Digital Revolution: Performance &Strategic Priorities for Policy Action” by Khuong Vu (Nov./Dec. 2021 Issue, #240, CoverStory
3. Free Trade Is a Solution for Saving Capitalism from Social Challenges
1) Interview with Dr. Stefan Kooths, Director of the Business Cycles & Growth ResearchCenter at the Kiel Institute, Germany “Free & Open Competition Would Play a Key Role in
Maintaining Sustainable Growth in Europe” by Japan SPOTLIGHT (Nov./Dec. 2021 Issue,#240, Cover Story 4)2) Roundtable with Prof. Fukunari Kimura, Prof. Junko Shimizu & Kayo Matsumoto “White

Paper on International Economy & Trade 2021: Trade Policy at an Historical Turning Point”
by Japan SPOTLIGHT (Sept./Oct. 2021 Issue, #239, Cover Story 2)
4. Solutions for Geopolitical Challenges
1) Interview with Adam Tooze, Kathryn & Shelby Cullom Davis Professor of History,

Department of History, Columbia University “An Historian’s Views on Present Geopolitics& Geoeconomics” by Japan SPOTLIGHT (Jan./Feb. 2022 Issue, #241, Cover Story 1)2) “Will a Taiwan Emergency Happen? Analyzing the Challenges Facing China” by Yasuhiro

Matsuda (Jan./Feb. 2022 Issue, #241, Cover Story 5)3) “Management that Embodies Sophisticated Rules & Democracy as Keys to Economic

Security” by Toshifumi Kokubun (Jan./Feb. 2022 Issue, #241, Cover Story 9)
5. Solutions for Global Climate Change
1) Roundtable with Teiko Kudo, Prof. Yukari Takamura, Tatsuya Terazawa, & Masakazu
Toyoda “Assessment of COP26 & the Challenges Ahead on Japan’s Path to Carbon
Neutrality” by Japan SPOTLIGHT (March/April 2022 Issue, #242, Cover Story 1)
6. Stories of Cultural Exchange – A Long-Term Solution for Geopolitical Crises
1) Interview with Roland Kelts, contributing editor of MONKEY Magazine MONKEY

Magazine “Exchanges Literatures Between the US & Japan” by Japan SPOTLIGHT(May/June 2021 Issue, #237, Culture 2)2) “Hariprabha Takeda’s Diary – an Indian Woman’s Observations of Taisho & Meiji Japan”

by Mukesh Williams (Sept./Oct. 2021 Issue, #239, History of Relations of Asian Countries)
Naoyuki Haraoka is editor-in-chief of Japan SPOTLIGHT & executive managing director of
the Japan Economic Foundation (JEF).

COVER STORY • 2Interview with Dr. Jonathan Haskel, Professor of Economics, Imperial College Business School,co-author of the book Capitalism Without CapitalW

hat Does “Capitalism
Without Capital” LookLike?

By Japan SPOTLIGHT

We are increasingly seeing a rise in intangible assets and are curious about what the consequences ofthis will be for capitalism. As the coronavirus pandemic continues and the use of software related to IT
rises significantly, its impact could be enormous. To talk about this issue, Japan SPOTLIGHT held aninterview with Prof. Jonathan Haskel, who recently co-authored the book Capitalism Without Capital on theintangible economy with Dr. Stian Westlake, senior fellow at Nesta, the United Kingdom’s nationalfoundation for innovation.
(Interviewed on Jan. 20, 2021)

The Rise of Intangible
Investment
JS: What has changed the nature ofinvestment from the tangible to theintangible these last three or four
decades? Is the IT revolution the
only reason or are there others?

Measuring Intangible
Investment
JS: Your book tells us thatinvestment in intangible assets issignificantly increasing, and insome developed nations has
become key to economic growth.
How can we quantitatively compare
tangible and intangible
investments?

Haskel: It is a good question to understand
why the economy has become intangible andI think there are at least two reasons. One, theHaskel: Let us start with national accounting.
rise in information technology is deeply
For national accounting, that is compilingcomplementary with intangible capital.
GDP, we have got a lot of experience inComplementary is a term in economics whichmeasuring investment. We survey firms andsays that if you have inputs used in
ask them how much they are investing in
production like fast computers, they are
Dr. Jonathan Haskel
plant, equipment, and vehicles. Firms aregoing to need software and databases andused to answering those kinds of questions. More recently, firms are
may need the restructuring of businesses in order to become morealso investing in intangible items such as R&D and software. One
effective. Two, the nature of business organization, especially in
way is to ask them the same kind of questions, and many companies
developed countries, has changed. A lot of the production process
can answer these questions. Software, for example, is quite often
has been sent offshore, for example from the City of London to Eastbought either off-the-shelf, or firms might be renting software
Asia and to closer countries like Eastern Europe. Those companies
services from the cloud, and so on. That is one approach. Where thathave become different kinds of companies – they are not really doing
gets more difficult is that for many intangible assets, especially R&D
manufacturing at home anymore, rather they are organizing andand market research, these are quite difficult for firms to buy in. They
coordinating and managing. That requires a much more intangible
want to do somewhat the opposite, which is to develop themgroup of assets such as the organizational capital, reputation, and allinternally so that the secret of R&D or knowledge of the market does
the knowledge that goes into coordinating large supply chains. Thatnot leak out. So, if you take a conventional questionnaire and askchange in the nature of businesses has increased the amount of“How much are you spending on buying this in?”, firms don’t know
intangible capital that they need.
what to do with that. So in terms of how we are going to measure
the intangible assets, we have to get a bit cleverer when we ask
firms, and that is what statistical agencies do. They ask how much
8 Japan SPOTLIGHT • May / June 2021

https://www.jef.or.jp/journal/

they are spending on the internal generation of these assets if you
have a unit of your firm writing software, for example. We have to
ask what costs were incurred in that unit. That is one area aroundnational accounting and GDP, and what statistical agencies are doing
is to increasingly move to count these intangible assets.
Regarding company accounting, company accountants are very
reluctant to count intangible assets. They dislike putting it on thebalance sheet essentially because those internally generated assets
are very difficult to measure. It is a situation in which national
accounting is going a little bit faster than company accounting andfor that reason we think a problem with company accounts is thatthey are not very informative about a very intangible intensive
business because they are limited in the extent to which they countthese intangible assets.

Impact on TFP
JS: Turning to total factor productivity (TFP), many

people seem to be irritated about its low growth,
especially governments, but this should not be thecase given the technological advances in software.
How can we take account of these intangible assets
for TFP?

Haskel: You are absolutely right that the performance of productivity
growth and in particular TFP growth has been very disappointing in
more or less all countries since the financial crisis. This is a great
puzzle because it does seem like we have wonderful newtechnologies, for example those that help discover a vaccine forcoronavirus, which should speed up TFP growth. So there are anumber of things going on with the fall in TFP. One possibility is that
we are having to do as a society a lot of investment in technologies
which have not yet brought about the goods we are hoping for. An
obvious example would be driverless cars; lots of companies are
spending money on software but so far, at least in the UK, we don’t
have any driverless cars on the road. The trouble with thishypothesis is the evidence suggests otherwise. There is a lot of
spending on software and these other goods, but even if you were toinclude that spending in various ways into GDP, you still don’t get
much boost to GDP.
Another hypothesis is that productivity growth has just finished.
We were very lucky as a society over the last 200 years; we had anindustrial revolution and an information technology revolution but
now that’s all finished, and we have nothing left. A third hypothesis isaround intangible assets and starts with the observation that since

the financial crisis, the pace of investment in intangible assets has
slowed down. In the countries where it has slowed down the most,those are the countries that have had the biggest falls in TFP – theUK and Finland are two examples. Maybe what is happening is thatwith the slowdown in investment in intangible assets, there is lessproductivity coming, and if that is true it might be quite optimistic for
the future because if we can raise investment in intangible assets wewould therefore be able to reverse this and restore productivity tohigher levels of growth.

Key Characteristics of Intangible Assets
JS: You describe the four key characteristics ofintangible assets as sunk cost, spillover, scalable
and synergy. How might these characteristics
increase uncertainty and conflicts?

Haskel: Intangible assets have got these interesting economic
properties. You can scale them up; they can spill over from one firm
to another; if you combine them, they are very powerful. They areoften sunk costs that are difficult to recover. They also raise a big
puzzle – in an intangible economy with lots of spillovers, companies
can copy intangible ideas from others. For example, when the iPhone
first appeared, within about 18 months every smartphone looked likeit. Before the iPhone, smartphones had little keyboards and aerials
sticking out and so on but in 18 months that was all finished. This isa clear example of a spillover where an idea can be used by others,
the idea being the design in this case, which is an intangible asset.
You might conclude from that that intangibles are a great force for
equality, because firms can converge in the type of products they
offer. On the other hand, what we have seen is a divergence between
the performance of the top firms and the lower firms. What is goingon here is that the other properties of intangibles are forces forinequality. For example, scale means that if you have a very valuable
intangible you can scale up. Apple has a very valuable intangible
asset called reputation, so it can scale up and make not only phones
but watches and other goods too. Synergies mean that if you
combine the intangibles together you are even more productive.
Google, for example, has the intangible asset of an enormous
database that everybody is searching and they can combine that withmaps, to offer programs for navigation, or could offer advertising. So
the force of spillovers is a force for equality, while the force ofsynergies and scale is a force for inequality, and it looks like the force
for inequality is winning out at the moment.
All of that combined together means that you get the kind ofJapan SPOTLIGHT • May / June 20219

conflict referred to in your question. If you have a very unequal
distribution of firm performance, those high performing firms
probably might be more profitable, probably attract more workers,
and probably the types of conditions and economic circumstances
involved in those firms are going to be more if you hold stocks andshares in those firms, or if you have a job in those firms. So theconflict might come from the outcome of those very different
intangible forces.
JS: Intangible investment would be high risk with highreturns, because it has high sunk cost and highscalability. So if you are smart enough, you can earnlots of money, but if you are not smart you would
lose money. This could be a source of conflict anduncertainty.

Haskel: I agree, and it makes these kinds of intangibles deeply
complementary to talent and skill in the workplace. I mean the kindof talent and skill that can combine those intangibles together. Whatis interesting is that you can imagine a very talented chemist might
have the talent and skill to combine chemistry elements together,gain the synergies, scale up and do very well in the intangible
economy. On the other hand, maybe a very talented person who is
not a brilliant scientist or mathematician can bring together thedesigners and scientists and marketing people and succeed greatly
in the intangible economy. So the skill to succeed in the intangible
economy is the skill that combines those intangible assets together.
JS: Synergy, for example, could create monopolies, aswith the GAFA companies.

Haskel: Let us talk about Amazon. One of the great synergies it has
is its own platform. It has an enormous database, so if you are acompany selling shoes and brown shoes happen to be doing better
than black shoes, you know that as a company because you knowwhat your sales are, but so does Amazon because it has that
information too. The synergies that Amazon has are that information,and the network of other information and computer programmers,
so they can then enter the brown shoes market and grow very big
because they have that information combined with the other things
they can do. That would appear to be a situation in which Amazon
would get a permanent monopoly. In order to do that it might be able
to offer them cheaply, or deliver with other items, for example. There
are two forces – one force for monopoly because of the synergies,
but the other force is that if they can scale up and offer these more
10 Japan SPOTLIGHT • May / June 2021

cheaply, that might be beneficial. We don’t quite know how this isgoing to work out. There is some academic research evidence on the
Amazon side that it does indeed enter into the markets where it getsthe information, but it does offer very cheap prices in those markets
where it enters. These different effects would give you more types ofmonopoly, but it might end up with consumers getting a better deal.
JS: Another possibility might be caused by massive

spillover. Would that force firms to strictly protect
their patents?

Haskel: That is correct. In all developed countries we have a wellestablished intellectual property protection system which iscontroversial in some ways. Everybody accepts that if you are acompany and you spend billions developing a vaccine, for example,
you need protection from other companies copying that vaccine,otherwise you would not spend billions in advance. On the other
hand, we have seen companies using patents in a somewhat
strategic fashion, for example taking out lots of patents intechnologies that they might not use, making the ownership ofpatents extremely complicated. That means that other companies
that want to either license or use information from those patents todevelop other medicines or products might find it very difficult to doso and if they are challenged on a legal point of view, that may takeaway from the amount of follow-up information. Many people takethe view that maybe as a society we might have gone too far inallowing companies to patent in a way that would stop this kind offollow-up innovation. In the book we are cautious about having more
patenting, because of that possible bad effect.

Significant Impact on Macroeconomy
JS: The macroeconomic impact of this intangible

economy does seem to be enormous, because low
investment and low interest rates and low growth
rates in the long run could be explained by risingintangible assets. Would you concur with that view?

Haskel: Yes, we think that is part of it. As you observe, one of thegreat puzzles for current day economics is that investment anddemand in economies seem to be extremely low, even thoughinterest rates are very low. Usually when interest rates are low andprofits are high and there is lots of technology, you would expect a
lot of investment by companies to take advantage of these
conditions. The puzzle is that over the last 30 years, interest rates

have been falling and falling with no apparent offsetting rise ininvestment. We think that part of the answer may be that the changethat there has been to a more intangible economy has meant that theinvestment climate for firms has got riskier.
When we say investment interest rates have gone down, we
typically refer to the interest rates on safe assets like government
bonds, but the interest rate that companies face has gone up
somewhat for reasons we don’t quite understand, but it could be
partly to do with the more risky type of economy in the intangible
assets area and might mean the firms require a higher hurdle rate of
return. Therefore, all those safe interest rates have been going down,
and investment has not been going down for that reason.
JS: Do you think this issue is known bymacroeconomic policy practitioners such as central
bankers?

Haskel: Not so much. I think that mostly, central bankers look at thefall in real interest rates over the last 30 years and describe it as
being to do with demographics, namely more people coming into thelabor market and saving for their future. We think that an additional
element is the rise in intangible assets which has raised the risk
hurdle that firms have to cross.
JS: During the pandemic, with working from home andIT utilization, the intangible economy has been risingfurther. Does this mean an economic depression
would negatively affect economic growth?

Haskel: A few thoughts on this question. What we have seen
especially in developed countries is a gigantic switch to working
from home. Before the pandemic in the UK, we had about 12% of theworkforce working from home; now we have 30% or possible 35%
working from home. How did we achieve such a considerable
structural change in the economy? If we go back to industrial times
when people mostly worked in factories, if you were to have a thirdof the factory workforce working at home, they would have had nomachines to work with and the output of the economy would
collapse. We have not had a total collapse of output and so thetransition to working from home has cushioned the economy
slightly, and so it is a source of some resilience because somepeople have been able to leave their factory as it were and carry on
working from home. In terms of the role of intangibles, the capital –the machines they work at home on – is not old-fashioned capital
like blast furnaces or diggers; they are using their MacBook and theirInternet connection, and the software has to power the connectivity
that brings all that capital together. The ability to work from home isdeeply connected with the intangible economy. The intangible
economy has given us some resilience in the economy and protected
us from some of the worst effects of the pandemic.
What does all of this mean in the future? One thing we do know isthat productivity growth and innovation and improvement do notdrop out of the sky – firms have got to spend money on it andexperiment and spend actual resources. The pandemic has helped
more people work at home but has been very difficult for firms
financially and to plan in the future. The fall in investment would be
bad news for productivity and so everything hinges on whether
investment goes up and bounces back, and will that burst ofintangible investment bring some more productivity growth? We
don’t know the answer to that yet but the faster we can roll out thevaccine and get back to normal, the faster that would be a possibility.

Income Inequality
JS: On the question of the possible expansion ofincome inequality due to the expansion of theintangible economy, this inequality will happen not
only between companies but also between
individuals. That would affect democracy. The
intangible economy has a deep impact on theeconomy but also on politics. Would you agree?

Haskel: I think that is a very interesting point that we don’t cover inthe book. You are absolutely right that the growth in inequality in theintangible economy might be very considerable. My favorite example
coming from Britain is the great British invention that everybody inthe world has heard of, namely Harry Potter – and if you ask who
has got rich from Harry Potter, the answer is the woman who wrote
the book, J. K. Rowling. What asset does she own? She owns a very
valuable intangible asset which is the idea behind Harry Potter andthe copyright to the books. That asset has been combined with otherintangible assets like the software that generates the computer
things in the movie, or the design to make a theater performance. It’sa sort of case study where the ownership of that asset and the
combination of the assets have given you something extremely
valuable. That leads you to an unequal world, but it leads you to an
unequal world on the basis of an asset that everybody likes in thecase of Harry Potter.
The political aspect that follows is that, if we have societies where
campaign finance is extremely important, then we have theJapan SPOTLIGHT • May / June 202111

possibility that richer people might be able to influence economic
policy in a way that might be felt to be undesirable, and this is taken
up in Thomas Philippon’s book where he argues that the importanceof campaign political finance in the United States leaves its anti-trustand other systems very vulnerable to spending by very rich people,
and then for putting influence on the law. Part of the difficulty is thatthe increase in inequality possibly from intangibles – if it breaks
down the political consensus around anti-trust and other types ofpublic policy – could be very difficult.

Impact on Other Public Policy Issues
JS: Regarding the intangible economy’s impact on awide range of public policy issues, could education
policy or infrastructure provision policy also beaffected? How about human resources and business
management?

Haskel: There are lots of implications for education and managerial
policy also. As part of the intangible revolution, the whole structureof delivering education itself has surely completely changed – theuse of online resources. Maybe it is time to change the education
business model, if I may call it that, and do something different.
There is a wonderful illustration in the front of a very good book by
British writer David Willets called A University Education, and it is an
illustration of a university lecture in Italy in the 16th century. In otherwords, 500 years ago. It has a lecturer standing at the front andstudents sitting at the front paying attention and other students
sitting at the back fast asleep, having a drink or not paying any
attention. We have had exactly the same method of teaching, thesame business model for 500 years and so maybe it is time to dosomething different with teaching and the Internet. That is one
thought on how intangibles affect education.
Another thought goes back to what I said earlier on. You might saythat from an education policy point of view, what we need to do in an
intangible economy is for everybody to become a scientist or acomputer programmer. You might say that because perhaps
everybody needs to be writing software and discovering new
chemical compounds. That is surely what a knowledge economy isabout – there is no need for historians and poets because they haveno future in this kind of economy. We reject that hypothesis quite
strongly. The reason is this. If you have a lot of synergies in theintangible economy, that is to say combinations of intangible assets– going back to Harry Potter, the terrific script and the software andthe design – then valuable people in the economy are those who can
12 Japan SPOTLIGHT • May / June 2021

combine those synergies together, work with different people and ina team, with human communication and motivation skills. These aregoing to be very valuable people in the intangible economy so let’s
not have a complete shift in education policy only to scientists andonly to chemists and biologists. Let’s have other people as well.
JS: The intangible economy has a wide range of

implications for politics, economy, business
management, and so on, and your book is invaluablefor pointing these out. But maybe the next step would
involve specific solutions for the issues arising fromthe intangible economy. How do you assess yourbook’s contribution to the future of the intangible
economy and how would you elaborate on yourcontribution from now on?

Haskel: Thank you for the question. I would say two things. Firstly,
we hope the book has raised a set of questions and helps people tounderstand an economy that a lot of people find very puzzling. Why
it is that Harry Potter is so successful and more traditional
companies making cars and steel are not so successful? They don’t
understand why it is that Apple is so dominant and more traditional
companies are not. It is helpful to think about those companies andindividuals as having very valuable intangible assets. We hope it
contributes to thinking about these kinds of issues.
The second thing is that in terms of understanding what is goingon in the future, the biggest issue is if we end up with a very divided
society. Then the consensus around the type of economy anddemocracies that we run in developed economies – open, fairly
liberal market economies – may run out. So understanding that kindof conflict is very important. What follows from that is if I had tothink of one thing, I just wonder whether something about thefinancial system is going to be very important in the future. At the
moment is very difficult for an intangible intensive company toborrow money and start up. If you are company that has a building,then you can go to the bank and offer the building as security andthey will give you a loan. If you are a company and you have an idea
for a movie or some software, banks will find it more difficult to lend
to those kinds of companies and so we may be holding back thosecompanies from starting up. That passes the advantage to theexisting companies and so understanding how we can improve that
could turn out to be very important.
Written with the cooperation of Joel Challender who is a translator,
interpreter, researcher and writer specializing in Japanese disaster preparedness.

COVER STORY • 5

EInterview with Prof. Fuhito Kojima, Director of the Market Design Center, University of Tokyo

conomic Theory
Supplementing Price
Mechanism

By Japan SPOTLIGHT
Capitalism evolves with the study and research of economics. Fuhito Kojima, professor at the Universityof Tokyo, began his research in 2020 on the social implementation of his theory of market designs to
supplement the price mechanism in areas where the function of such a mechanism is limited. His researchis conducted at the Market Design Center at the University of Tokyo, where he is working as a director. His
pioneering contributions are introduced in the following interview.
(Interviewed on Jan. 25, 2021)

Limitations of the Price
Mechanism in Fulfilling
People’s Needs

past but are now prohibited. Therefore, it is
not clear whether the areas where the pricemechanism fails to work are expanding or
diminishing.
JS: There seems to be a keen sense
One thing that is clear is that a naive
today of the limitations of the priceeconomic theory advocating permanently formechanism in our contemporary
the effectiveness of the price mechanism ineconomy. Do you think there aremaking everything go well in any given area,
more areas than ever where thewhich was accepted by many during much ofprice mechanism does not function
the 20th century, is not considered valid
very well, and do you think thisanymore in spite of some of its merits.
could be a driving force for the
Whether a deal is to be done by the priceevolution of capitalism?
mechanism or not will be determined byhuman ideas or social ethics. In our
Kojima: It is a difficult question. With thecontemporary age, there are some deals in
evolution of capitalism so far, the pricewhich the price mechanism is not used. So
mechanism has achieved what was not
our economy is not moving towards one inProf. Fuhito Kojima
possible in ancient times. For example,
which price mechanisms are almighty as
earning interest by lending money was prohibited by Ecclesiasticalonce envisaged by economists who believed in their omnipotence.
law in Christianity in Europe in the Medieval Age, but as the influenceof Catholic churches in Europe diminished around the 16th and 17th
JS: Recently, I think income inequality is an issue
which the price mechanism has failed to resolve. We
centuries, this prohibition worked less and less. In particular, as
cannot achieve a sustainable economy without
Protestantism expanded in the 17th and 18th centuries, earning
tackling the increase in income inequality. Is yourinterest by lending money became increasingly accepted. With thetheory of market design something that could
emergence of mercantilism in the 17th century and the Industrial
supplement the price mechanism?
Revolution in the 18th and 19th centuries, capitalism was born andnow as capitalism evolves, market mechanisms are allowed to
Kojima: In reality, even among capitalist nations, governments havefunction in such financial business.
been playing an important role in the economy for social reasons
However, there are businesses that are banned for ethical reasonssince the middle of the 20th century. We call it a mixed economy andin our own age. Slavery or indentured servitude used to be allowed
it is not possible to leave everything to the price mechanism and let
and merchandized in the market, but not any more in our age. So
income inequality continue to grow, as that would make society
there are some that were prohibited by law or customs from market
unstable. I am working now on matching the need for daycaretransactions in the past but now can be transacted in the market,
facilities and their supply. I note the thought in the government that
whereas there are some that used to be allowed in the market in the
22 Japan SPOTLIGHT • May / June 2021

https://www.jef.or.jp/journal/

daycare services should not be left only to the price mechanism but
should be provided to all people including the poor. Yes, how toprovide such socially basic services like licensed daycare facilities
among the people as equally as possible will be an important issue.

Brief Introduction of Market Design
JS: You are working on market design supplementing

the price mechanism for a certain good or service toachieve the best match between people who need it
and people who supply it. Could you explain briefly
and exactly what market design is?

Kojima: Yes. There are markets for some goods or services where
the price mechanism does not work. For example, in case where
monopolies or oligopolies like GAFA can control market prices, or incases where there are too many players in the market as in the caseof the labor market and there is no rule to be applied to fix the prices
and it would be difficult to achieve matches between so many job
applicants and firms in need of workers, price mechanisms would
not work well to achieve desirable market outcomes, as is assumed
by classical naïve economists.
We economists working on market design theory would not
pursue socialism in those failed markets but try to assist the players
in those markets to design an orderly framework to match theirneeds and supplies among themselves. To be more specific, in thecase of daycare facilities in Japan, most of them are licensed andonce they get a license from the government they get a subsidy. But
they would have to observe regulations such as fixing a monthly fee
and thus they cannot determine monthly fees on their own; instead
they have a fee fixed by the local government. With a price fixed
lower than the market price, there would be excess demand for
daycare facilities and some kids would have to be on the waiting list.
In that case, they would have to rely on rationing rather than price.
Each local government receives a preference list from the parents
and rations the kids to each daycare facility accordingly. Among
more than 1,000 local authorities in Japan, some adopt a goodrationing method, some do not. Our job at the Market Design Center
is to study these different rationing methods and advise them on
how to improve the methods.
For example, some local governments limit the number of wishes
to three or five. In such cases, they would not have information
about wishes with priority lower than three or five. That could hinder
the best matching. We can show them in theory or quantitatively that
it would be better not to limit the number of wishes on the list. We

design a system where each kid would be accepted by some daycare
facility with a limitless preference list. There are largely twoframeworks for rationing provided by us. One is based on the orderof wishes and the other is based on the priority index of each family
fixed in accordance with its need for a daycare facility.
The first one is to look at only the first wish on each applicant’s list
and assign those wishes among the available facilities. We would
have to assign those left out from the first rationing to the facilities inthe second on their preference lists if the first wishes are full.
The second one is to look at those with a better priority index for a
facility first and assign them to the best facility among those withvacancies. The first one may look better. However, many parents
would think about their priority of facilities after considering eachfacility’s popularity. For example, if I have two facilities in mind as thefirst choices but both of them are very popular, I would see a large
likelihood of failure to be accepted by both of them. So thinking
about the risk of failing to be accepted by both of them, I would
mention in the priority list my third choice as the first one. This riskaverting choice would eventually result in frustration anddissatisfaction with the rationing and in the worst case there would
be kids on the waiting list.
We can mathematically prove that the second method would
eliminate such concerns. What the applicants have to do in thismethod is just to tell their preferences honestly. Our mathematicaltheorem proves that nobody would be annoyed by this method. In
reality, economists in the United States recommended such methods
in school selection systems. I hope we can see a sign of change in
the Japanese daycare facility system through communication withlocal governments.
JS: This looks like one of the applications of gametheory.

Kojima: Yes, it is. In terms of game theory, the authentic preference
list-oriented method would not achieve optimal equilibrium. The
index-oriented method was invented by economists David Gale and
Lloyd Shapley, and we call it the Gale-Shapley algorithm. In thismethod, in terms of game theory terminology, the dominant strategy
would be to tell the truth about the wishes in order to achieve theoptimum. This theory has been developed most extensively in the
US.

Application of Market Design
JS: Has the theory of market design been applied toJapan SPOTLIGHT • May / June 2021

23the US education system in practice?
Kojima: Yes. The preference-list oriented method was adopted in theschool selection system in Boston and we call it the Boston method.
With the economists’ suggestions, reforms were achieved in the
middle of the 2000s. Thus, in Boston, this method is not usedanymore, nor in New York or Chicago.
JS: Can market design be applied to the Covid-19

vaccine distribution as well? If so, how?

Kojima: This is a domain where we cannot give a clear answer yet.
However, I can tell you points for consideration. In market design,
first of all, we need to listen to an applicant’s wish and his or her
personal situation and then we would provide the relevant framework
to satisfy the applicants’ needs.
This is the basic idea of market design. In the case of vaccine
distribution, we would need to consider each applicant’s personal
situation, such as their underlying health condition, age, whether
they are medical staff or not, as well as their preferences. We would
need to consider different vaccines as well. For example, whether we
could keep the vaccine at normal temperature or not would make adifference. In thinking about what combination of the different
vaccines would maximize the number of vaccine recipients, thisdifference is crucial. Whereas the Pfizer vaccine needs a deep freezer
for preservation, AstraZeneca’s is preserved at normal temperature.
Therefore, giving the AstraZeneca vaccine to people who could havethe Pfizer one would be a waste of vaccines. AstraZeneca’s vaccine
must be sent with high priority to medical facilities where a deep
freezer is not available. We use advanced mathematics for the
relevant combination for those different vaccine rationings.

Market Design Center at the University ofTokyo
JS: Could you give an outline of your center’s mission

and work at this moment?

Kojima: Yes. The Market Design Center is a research organization
studying market design as an economic theory. However, its othermission is the social implementation of market design theory. We areworking with people outside the university as well as people inside it
to explore the application of matching theory or market design
theory to real-life issues and get feedback from those applications.
The example of the daycare facilities that I introduced is exactly one
24 Japan SPOTLIGHT • May / June 2021of those applications and we are now about to move to social
implementation of this issue in collaboration with some local
authorities and business firms providing daycare services.
As to the application of matching theory for arranging contact
between people, we are also about to start a project on allocation of
medical doctors all over Japan. A matching algorithm is already used
for assignment of medical residents who have just graduated from afaculty of medicine at university, a little more than 9,000 per year,
among medical institutes all over the nation. We have been working
on possible improvement of such assignment and we are now
pursuing its social implementation.
Another project for social implementation is the application fororganizational personnel assignment, which is strongly requested by
the business side. It has long been a key issue for business firms tomobilize human resources and assign employees to the jobs they are
most suited to. In recent years, they found that it was very difficult
for any personnel management expert to achieve a perfect allocationof human resources among the relevant jobs. Then, in somecompanies, an algorithm was attempted to be introduced for
personnel assignment. The case of Google is well known. They
introduced a matching algorithm for personnel assignment five years
ago. We are now talking with some Japanese companies to explore
such applications.
JS: Would mathematics help realize “the right personin the right place” rather than a human personnel
policy expert?

Kojima: Yes. If a firm’s personnel affairs department orders an
employee to be transferred to some post, there will be some cases
when they are unhappy about the transfer and quit. On the other
hand, in some companies, they create an artificial labor market
inside the company. In those companies, divisions or departments
are asked for open recruitment for any vacant posts and employees
are recommended to apply for those posts freely. But this systemdoes not work well either, since recruit information is not wellmanaged and in some cases there are very few employees available
at the time of personnel transfer or in some cases employees are notwell informed of where to go to access such open recruitment
information.
In the case of Google, they stopped such open recruitment within
the company once a year and created three occasions for personnel
transfer in the company every year and asked all the sections to
issue open recruitment on those occasions and employees wishingfor a new assignment to go to a job interview for recruitment in one

of those sections. After those interviews, any assignment would be
ultimately fixed by a matching algorithm. This system, I believe,
would be well accepted by a Japanese company making regularpersonnel transfers customary. So we started collaborating withsome Japanese companies on its application.
This is an interesting project to meet an employee’s wishes for job
assignment and job satisfaction as well as a business section’s
needs for the best and fittest for the job simultaneously.

Expansion of the Applications of Market
Design
JS: The role of local governments will be more

important in Japan as decentralization increases. Do
you think the application of market design will
increase accordingly?

Kojima: Yes. I think there are some local governments in Japan thatare very active in engaging in ambitious initiatives. They are ready tolisten to our proposals. I am not quite sure about the role of local
governments in Japan in the future, but I believe we should pursue
the best allocation of roles between local governments and thecentral government. In the case of daycare facilities, local
governments have good connections with each facility and detailed
information about each facility’s specific situations, and taking
advantage of these they establish new facilities or ask some facilities
to increase their capacity to accept more kids.
What’s more, there would be room for improvement to standardize
the matching method which is now left to each local authority’s own
decision. If it is standardized by the central government or any otherpublic policy organization, the cost of matching would beenormously reduced. With the introduction of standardized software
for matching algorithms, all local governments could use it.
JS: What you have mentioned so far about market

design’s social implementation is totally related tosocial policy issues such as education, healthcare,
daycare facilities, and so on. Would that lead to amodification of inequality?

Kojima: Yes. And I would like to add one more thing. For thequestion of medical residents I mentioned in particular, as medical
service is of a public nature, we will need to provide a minimum
sufficient medical service for remote areas. In Japan, medical
doctors are not allowed to go anywhere to work. In order to maintaina minimum medical service for a remote area, the government has
set a cap on the number of medical residents assigned to large cities
like Tokyo or Osaka. The current system or algorithm in Japan leaves
some room for improvement to meet those medical residents’wishes for job assignments.
At the Market Design Center, we want to pursue a reform of thesystem that better balances their personal wishes with the social
need for minimum medical services even in remote areas. We hope
we can accomplish our mission to contribute to social policy making
to meet both personal and social needs. In areas where the pricemechanism works well, resource allocation should be left to prices;
but in areas where it does not work well, we should introduce market
design and promote it for social implementation.

Future Mission of Market Design Center
JS: Will the Market Design Center’s work increase

from now on in fields where market design will have
expanded application?

Kojima: Yes. In Japan there is much potential for expansive use of
market design, as its social implementation is far behind that in the
US or other advanced nations, probably because it is not sociallyacknowledged yet. I believe we will have lots of work to do in fillingup the gap.
JS: What would you like to do in order to enhance

public perception of market design in Japan?

Kojima: We would like to publicize our views and analyses as muchas possible. Our center was opened in autumn 2020. We organized
an inaugural symposium then for the public. Recently, one of ourresearch fellows, Dr. Shunya Noda at the University of British
Columbia, issued a policy report on market design for Covid-19
vaccine distribution. We would like to continue such efforts incommunication for the interest of the public. I would also like toissue my views on the economy and business in the light of market
design in the media. Such efforts to expand exposure of our center
to the media would help us raise the social perception of market
design.

Written by Naoyuki Haraoka, editor-in-chief of Japan SPOTLIGHT, with theassistance of TapeRewrite Corporation.

Japan SPOTLIGHT • May / June 2021

25

COVER STORY • 2Interview with Larry Clark, Managing Director of Global Learning Solutions at Harvard Business
Publishing Corporate LearningA

Crisis Could Provide Ideal
Conditions for Deep
Innovation

By Japan SPOTLIGHT
Another distinguished business management expert believes that a crisis could be a mother ofinnovation. Japan SPOTLIGHT held the following interview with Larry Clark, managing director of Global
Learning Solutions at Harvard Business Publishing Corporate Learning.
(Interviewed on March 30, 2021)

Self-Introduction
JS: Could you please introduce yourwork at Global Learning Solutions at
Harvard, as well as your various
backgrounds in business andeducation, in particular at Comcast
and Microsoft and so on.

Key Factors for Innovation
in a Crisis
JS: We are particularly interested ininnovation and entrepreneurshipduring the current pandemic crisis.
We think such difficulties would
encourage innovation andentrepreneurship. What are the key
factors for creating innovative
thinking and entrepreneurshipduring a crisis?

Clark: Just to understand what Harvard
Business Publishing (HBP) is about, we are anon-profit wholly owned subsidiary of Harvard
Business School. We take the research andClark: Many people think that is all aboutideas that come from Harvard’s researchsolving a big new problem. I think that is partly
centers as well as the external thought leaders
true. A crisis presents a very novel situationthat we work with, and we bring that thought
Larry Clark
that forces us to solve complex problems,
leadership to a much larger global audience. A
usually really fast. I don’t think that gets to the heart of the
lot of people know us from the Harvard Business Review, and theinnovation opportunity that is presented during a crisis. There areleadership books that we publish but we also work directly withfour factors that a crisis presents that work together to provide idealorganizations helping them leverage Harvard’s thought leadershipconditions for deep innovation.
and developing their leaders, so my role is leading the part of the
The first is what I call unfreezing the organization. Most
organization that supports all our leadership and development efforts
organizations have created structures so that they can get things
around the world.
done and save time and money, but that structure can over time start
Personally, I came to HBP about three years ago, as a customer.
to stifle innovation. The Covid-19 crisis upended the way that
Just before that I was leading talent management, leadership andgrocery chains manage inventory, a process that they have been
professional development at Comcast which is a Fortune 50 cablerefining for years to maximize profitability and efficiency. But with aand telecom firm that is based in the United States, where I spent six
huge spike in demand for certain products at the start of thegreat years. Prior to that I was with Microsoft for 12 years andpandemic, purchasing managers bypassed this so that they could
worked in a number of different areas – in talent, learningsource much larger quantities of products much more quickly. Thisdevelopment, organizational development, including several years
wiped away bureaucracy and allowed for fresh thinking.
leading all the learning content development for the Microsoft Global
The second factor is uniting around a purpose. Leaders are always
Field organization. I have had a lot of experience with organizations
trying to get more discretionary effort from people and to get moreneeding to innovate just to survive and so innovation is a topic dearengagement from employees. During a crisis, you don’t have to work
to my heart.
so hard to inspire engagement, and that spike in energy can be easily
https://www.jef.or.jp/journal/

Japan SPOTLIGHT • July / August 2021

7

directed towards a clear purpose, which is of course addressing thecrisis. In a recent global study we conducted with HR and talentleaders, they told us that despite the disruption from the pandemic,
employee engagement was up significantly just because of the crisis.
The third is about how people can start to see the system of theirorganization differently. In normal times, companies leverage
consultants to get an outside perspective, but in a crisis a lot of thethings in an organization that we don’t really think about – how basic
processes work or aspects of our products and technology –suddenly we see them in a completely different light. So this new
perspective reveals big opportunities for change and innovation.
The last factor which is probably the most obvious to everybody isthis bias towards action. A crisis demands movement and change so
the pace of ideation, the pace of decision making, andimplementation go well up. Organizations are willing to test newideas and experiment, to fail fast and move on. One organization took
a project that was slated to last for four months and completed it in a
day because the pandemic gave them this bias towards action, tojust do things and do them quickly.
JS: You mentioned “unfreezing the organization”. That

seems to be necessary even in normal times.

Clark: All of these are necessary but unfreezing the organization is a
hard one. Tech firms such as Microsoft operate in a very unfrozen
way. I was there for 12 years and had 13 different leaders, as it was amuch more fluid organization always looking to innovate. Other
organizations that are more built like machines for efficiency are theones that struggle with this unfreezing process.

Flexible Working Style in the Pandemic &Innovative Minds
JS: The pandemic has transformed working styles andlife-work balance. Do you think a flexible working
style will encourage innovation?

Clark: I think it depends on how leaders manage the flexibility. If theincreased autonomy that people feel by not being in an officeenvironment gives them the breathing room to come up with new
ideas, it will help. On the other hand, if people find themselvesscheduled on video calls 10 hours a day which is happening more
and more, then innovation could actually go down. Some people arefinding work-life balance easier under this environment, and somepeople are struggling. The other point is that we may need torecreate the informal ad hoc conversations that were common in ashared working environment. How do we replace two people running
into each other in the hallway, having a quick conversation or
jumping into a conversation room with a whiteboard. Those are the
8 Japan SPOTLIGHT • July / August 2021

kind of opportunities that we need to weave into how people work
today in this more remote and disconnected environment.
Direct encounters between people definitely create innovation. We
find that many of the leaders who foster the most innovation in theirorganizations aren’t necessarily that innovative themselves. It is not
the case that innovative people create a lot of innovation. We foundmany situations where people who are leading very innovative
groups who are not necessarily the innovators, but are rather
creating an environment where they feel freedom and a sense of
purpose, and the autonomy to execute that purpose. There is a lot of
psychological trust in that environment and people will feel that they
are able to take risks. That is a critical part of working together.
JS: This new working style has already created a lot of

gig workers. Will they be a new source ofentrepreneurship?

Clark: Gig workers are entrepreneurs. They are running their own
businesses and the good ones are looking at ways to maximize theirvalue in the market. In some cases, they are engaging with multiple
businesses in their work, just like consultants, and they gain new
thinking from one organization and carry that into a new client.
Depending on the nature of the gigs that they do, they can be like
bees, cross-pollinating different organizations with new ideas. It’s anadvantage that gig workers have, to bring in and add more value
because they are seeing more environments just like consultants do.
If it is something that a gig worker is willing to offer, they can bring a
lot of innovation to an organization.
JS: On the management side it might be challenging

to manage those gig workers.

Clark: It can be; it is just becoming more common to have gig
workers, contractors, short-term assignments. We are even finding a
trend of hyper-specializing towards jobs, as you can source talentfrom anywhere in the world. It is so easy to connect globally, so you
can take certain types of work that may have been done by one
person and break it up among different specialists around the world.
So that is a more common trend these days. Managers are gettingused to the idea that they don’t have to do everything just with thepeople that report directly to them. HR is also learning how to source
the kind of talent they need, so the more they become used to it, theeasier it will become.
JS: You mentioned that face-to-face meetings would

catalyze entrepreneurship. We are now living in an
IT-dominant world and perhaps this online
communication is becoming more common. Maybe
the challenge for management today would be how tomix face-to-face meetings with online conversations.
What would be the best strategy for management to
combine the two?

JS: Besides the IT sector, what other sectors do you

Clark: We have been doing some of that for a while but now have
moved so much so quickly. Part of what is helping right now is thatthe technology is starting to get better, and people are becoming
more comfortable with it. Where some people a year ago could not
imagine being online all day and having meetings, now it has
become part of their day-to-day operation. Leaders need to be moreproactive. They need to think about the nature of engagement
because the people aren’t just down the hall, so they have to think
about the kind of environment they need to set up. Organizations are
finding ways to do that, but the leaders that we find are working wellin this environment are the ones who schedule the time, and alsoorganize informal happy hours, get-togethers and team lunches
online, which make a huge difference in creating informal
conversation and getting people to share ideas.

Clark: We are all becoming tech firms; everyone is heavily dependent
on technology. Large operations that do supply chain management,
logistics – pretty much every industry can leverage technology to agreater degree than they have. The ones that are tech-based alreadysuch as software and telecoms are sprinting ahead with their plans,
but I think we are going to see innovation coming out acrossmultiple industries. Pharmaceuticals has fundamentally changed,
where you are using genetic material or code and actuallysynthesizing something through software that we can use to stem apandemic. So, I think it is happening everywhere.

Moving Towards a Knowledge-Based Society
in IT-Driven Economy

leadership education in the IT-driven or knowledgebased economy? What would be the role of businessleadership education during an era of crisis like apandemic?

JS: The IT sector would be the principal area where

innovation and entrepreneurship are created by the
pandemic. Would this make our economy more
software service-oriented? Would our society
become a more knowledge-based society?

Clark: I think so. Speaking with HBP clients, the work to innovate inoperations or business models was already underway for them butwhat shifted is the pace of innovation with tech. The pandemic hasforced leaders to look at their organizations and markets through acompletely different lens, and that puts a lot of constraints on themlike moving to a remote workforce or not being able to service
customers face to face. So tech has been a very flexible tool thatpeople have been applying to work around these constraints.
So through this, I think what has begun to change is that leaders
have started to become more digital savvy, they have had to start
thinking about how to leverage technology to create newopportunities and innovate their operations. Now that they aremaking that shift, I don’t think there is any turning back.
Every firm is now a tech firm. Software and connected systems
already hold the world together but our dependence on them willcontinue to grow so I think we are becoming more knowledge-based.
That said, we still need to build automobiles and manufacture
pencils. There is still work that needs to be done that is completely
knowledge-based and that will continue, but we are becoming more
knowledge-based and technology-centered.

think would be most promising for entrepreneurshipand innovation at the moment?

Role of Education in Knowledge-Based
EconomyJS: How do you perceive the role of business

Clark: I would say my answer to both is probably the same. Techfirms run like they are in a crisis all the time. Leadershipdevelopment needs to play a key role. Our research shows that whilesome leaders have been struggling in the current environment,
others are thriving. So we want to understand the difference and we
identified three key areas of capability.
The first is leading through uncertainty. This area is about
continuously making sense of what is emerging. These leaders are
comfortable with ambiguity, they can synthesize information quickly,
they can make decisions when there is imperfect information or a lotof unknowns.
The second area where leadership development plays a big role isin cultivating trust. This is focused on building a climate of purposeand belonging for people in their organization. Leaders who cultivate
trust demonstrate empathy, authenticity; they listen really well, andthey demonstrate that they value people as unique individuals.
Everybody brings something unique. Most importantly, they help
their team focus on a common purpose or a north star, and thatclarity is critical for them.
The third area that we found where leadership education can bereally helpful is this area that we call re-scaling for opportunity.
Leaders who do this well are great at fostering innovation; they also
drive new value through the use of data, analytics and technology.
This area is about how to lead the business into the future while theother two areas are more about how to lead in the present. If
Japan SPOTLIGHT • July / August 2021

9

leadership development efforts can focus on these three areas –especially with middle managers who tend to have the most difficultyin these areas – learning development functions can have a powerful
impact in supporting the organization throughout the crisis, andbeyond. All of those factors apply to an IT-based organization.
JS: In terms of the kinds of knowledge which businessleaders should have, engineering knowledge must be
key but what other kinds of important knowledge doleaders need to have?

Clark: You don’t necessarily need to have business acumen; but you
do need to understand your domain and cultivate trust. We arefinding that the breadth of things that leaders need to understandseems to be growing, and we hear about T-shaped leadership where
you can be deep in a certain area and know that area very well, but
you need to be conversant in other areas too. For me as a leader inmy organization, I am not expected to be able to do the job a web
developer might do, but I do need to be conversant in technologies
and understand how they affect my business. Digital savvy is a key
piece of what is going to be used to innovate your business model or
your operations. There are other capabilities that leaders need tohave, including finance, economics, marketing, and productlifecycles, but you need to be able to lead through that and beconversant in technology and to create a sense of purpose acrossyour organization.
JS: In this knowledge-based economy, employees

might need to be more highly educated; otherwise
they might lose jobs and not be paid well. In thatsense, how do you value the role of education in
general – in particular to mitigate income inequality,
which does seem to be a political question today?

Clark: The pace of change today requires people to be learning
constantly. So having a good foundation, for example a broad
understanding of business, economics, and technology is a great
starting point, but it is not enough. To stay current, everyone needs
to set aside time for learning. It also needs to be continuous –watching for new trends, being curious about how to increase yourimpact and value in the market. With this trend towards hybrid jobs
that have to span a number of specialties, like creative and analyticalwork together, the people who will do well will always be immersing
themselves in learning. Formal educational institutions are seeing
this need for continuous learning and are adopting their offerings tomeet that.
In terms of inequality, some have said it has been exacerbated by
the pandemic while others assert that it has just made existing
inequalities more visible; both points are true. We have so much
10 Japan SPOTLIGHT • July / August 2021

work to do to unwind all the social injustice that exists in our society
today. As painful as it is for everyone, I find a lot of hope in the factthat we are finally talking about it and starting to listen to each other.
My dream is that one day in the future we can look back on thispandemic and say we had one beautiful outcome of this – starting
the hard work of confronting the injustices in society and really
addressing them in a meaningful way.

Post-Pandemic Innovation Continuing
JS: Could you tell us how can a good business leader

maintain innovation and creativity in normal times
without a crisis? It is often said by economists thatafter the pandemic, unfortunately economic growth
will not be so high because people won’t spend
much money, causing the recession to continue.
After the pandemic, we might need more innovation
than ever.

Clark: I agree. The four conditions I mentioned earlier are things that
we can foster in our organizations as leaders without a crisis. We
just have to embed them in our thinking going forward. Companies
that grew up in the tech industry like Microsoft do those things well
all the time because the business environment they are in is like acrisis. Tech has thrived in the crisis not because of its inherent value
but because tech firms are purpose built to operate in these kinds ofconditions. If leaders can think and lead this way all the time,
imagine the impact they could have on the world – it could be truly
incredible.
JS: Do you have any future plans in your organization

to deal with questions of innovation andentrepreneurship during the pandemic?

Clark: We have projects around fostering innovation that we bringout to our clients and learners. Within our organization, fostering
innovation is one of our key leader capabilities, so we are always
publishing and researching that topic which overlaps with manyother topics. Innovation involves collaboration and how we think
about technology and having a digital mindset and other key
capabilities, so it is something that we are working on all the time.


Written with the cooperation of Joel Challender who is a translator, interpreter,
researcher and writer specializing in Japanese disaster preparedness.

COVER STORY • 4

CInterview with Dr. Yo Iwami, CEO of MedPeer

ollective Intelligence from IT to Support
Doctors & Help Patients – the Story ofJapanese Healthcare Venture MedPeer

By Japan SPOTLIGHT
The medical and healthcare business is an area where we can find great innovation andentrepreneurship, especially during the current pandemic, as necessity is indeed the mother of invention.
Vaccines have certainly been the most remarkable inventions during the pandemic. Telemedicine isanother innovation in progress under the pandemic, born of an increasing need for people to maintainsocial distance, as going to crowded hospitals for medical consultations carries the risk of spreading
infections.
MedPeer, founded in 2004, started to explore the sharing of medical knowledge and know-how among
doctors and patients through IT, aiming at creating collective intelligence among doctors and helping
patients with this collective knowledge. Thus it is a pioneer in the application of IT for medical andhealthcare work. Japan SPOTLIGHT interviewed Dr. Yo Iwami, CEO of MedPeer.
(Interviewed on March 24, 2021)

Introduction
JS: First of all, could you please

introduce yourself and yourcompany briefly?

and helping patients. At the beginning, thebusiness did not pay well and I was
struggling for satisfactory outcomes, but “thebulletin board of assessment on medicine”
that started in May 2010 on the MedPeer site
was a major breakthrough for our business.
That was a service providing information on
assessments of medicine on behalf of
medical doctors. There had been no service
as such in Japan thus far. Thanks to this, ourcompany finally had a surplus for the firsttime in 2012 since its foundation, and then in2014 it got listed on the Tokyo Stock
Exchange Mothers. With the increased main
pillars of our services, we moved onto theFirst Section of the Tokyo Stock Exchange in2020.

Iwami: I am from Sakura city in Chiba
Prefecture and graduated from the
Department of Medicine of Shinshu
University in Nagano in 1999, and then joined
the Section of Cardiology at Tokyo Women’s
Medical University Hospital. I was thenthinking about my career as a clinician andnever thought about starting a business.
However, between 1999 and 2004 there werean increasing number of medical litigations
and distrust in medicine was spreading
Dr. Yo Iwami
across the nation. Reflecting on this situation,
I started thinking about how to address this distrust in medicine as
Main Pillars of MedPeer’s Business Services
an individual as well as a medical doctor. One way of contributing
JS: When you started your business, your goal was
might have been to become involved in the policy making process in
the renewal of medical services by promoting shareda public organization such as the Ministry of Health, Labour andinformation among doctors and achieving collective
Welfare. But then I thought there ought to be a way for a private
intelligence. Meanwhile, in this time of pandemic, webusiness to help resolve such a social issue, and so I founded
see “telemedicine” is suddenly a topical issue
Medical Oblige Inc. in 2004.
nationwide. Would this be in your business territory
In 2007, I started up a specialized website for medical doctors
now?
called “Next Doctors” (now called MedPeer) in the hope of achieving
our mission of “Supporting Doctors, Helping Patients”. I thought that
Iwami: There are three main pillars of our business. The first one isstrengthening collaboration among medical doctors on the basis ofwhat we call a collective intelligence platform. This is a platform forshared information and know-how would lead to supporting doctors
https://www.jef.or.jp/journal/

Japan SPOTLIGHT • July / August 2021

15

information provision for expert groups such as “MedPeer”, ourwebsite restricted to the community of medical doctors, or“Yakumed” restricted to pharmacists. The second one is a platform
for preventive medicine, a service related to preventive medicine
providing guidance on meals by registered dietitians for those withconcerns about their health following medical examinations or
occupational health support for business firms. The third is a“primary care platform”, providing supporting services for primarycare doctors or primary care pharmacies.
This third category started only two years ago, but we are now
convinced of its utility. More specifically, we provide two kinds ofservices, one for primary care pharmacies called “Kakari” and theother for primary care clinics called “Kakari for Clinics”. We started
in 2020 an online medical consultation service within “Kakari for
Clinics”. Our business is often considered to develop as one thatprovides customers with online consultation services, but we believethat online consultation is not a goal but a means for treatment.
What we believe to be the most important merit of our services isthat medical doctors and patients, or pharmacists and patients can
get connected with each other through smartphone applications. Our“Kakari for Clinics” is a smartphone application with functions suchas reservations for consultation, two-way chat and online diagnosis.
A patient can choose an online consultation or face-to-faceconsultation depending upon their situation in the process ofsearching for a hospital and consulting with a primary care doctor.
So as a result of this online communication with primary caredoctors there could be a case of online diagnosis, which is what wecall “telemedicine”. This is the uniqueness of our service.

IT & Japanese Medical Service
JS: Do you think online medical information provisionor communication between doctors, pharmacists andpatients will continue even after the end of thepandemic?

Iwami: I do not think we will return to the situation before thepandemic. It is certainly true that the pandemic has radicallytransformed the nature of our medical service provided on the spot.
But this change had already started even before the pandemic.
Certainly, sometime before, doctors would not have had much to do
but sit in a chair in their consultation office and wait for patients. But
now this is over. At that time, doctors had an absolute authority
comparable to paternalism in an ancient family, but now they are
expected to increase the quality of their services as a reliable advisor.
Doctors and hospitals are thus asked to have more dialogue withpatients now. In this light, it is good for them to have an online
means of communication to connect with patients, even though it
was the tragedy of the pandemic that triggered this change.
16 Japan SPOTLIGHT • July / August 2021

JS: In general, the adoption of IT in Japanese

medicine has not made much progress. With the
pandemic, will this change or will there be any
obstacles to prevent it?

Iwami: I think IT will prevail in Japanese medicine and I believe wehave to promote it. This pandemic has reminded us of healthcare
workers being exposed to a high risk of mortality from the pandemic.
They must work in a place where they could die. In order to avoid
such risk, we need to promote online tools for consultation anddiagnosis. If there is any factor preventing the progress of IT
utilization in Japanese medicine, it would be a medical service
provision system too well accommodated. Everyone is guaranteed
under public healthcare insurance free access to medical services in
hospitals, and any patient can meet with any doctor at any time,
which is relatively unusual in the world.
This has enabled patients to have face-to-face meetings with
doctors and thus digital transformation has not made good progressso far.

Pandemic & Ventures in Medicine
JS: We believe this pandemic could create the seedsof innovation in various areas. Do you think start-up
companies will increase in the area of medicine?

Iwami: Even before the pandemic, we have seen start-ups increasingin the area of medicine and health care in Japan, as well as in othercountries. We are the co-sponsor with the Nihon Keizai Journal of a
global conference called “Healthtech/Sum” (healthcare technology
summits) and thus observe the latest trends among medical startups in the world, including those in Silicon Valley. We have seen adrastic decrease in medical and healthcare start-ups in Japan in2020 as well as in cases of their financing. It looks like alldevelopment stopped in this area in 2020. Meanwhile, in the UnitedStates, such start-ups recorded their highest level in 2020. Thus, we
see the perception of risk or risk money in Japan is very
contradictory to that in the US. But I think that in Japan we will now
see a rapidly rising number of start-ups.
JS: The most significant innovations under the

pandemic must be vaccines. There are now a varietyof vaccines developed by some pharmaceuticalcompanies and R&D of therapeutics for Covid-19 isalso under progress. Are you prepared to provide
information on these vaccines and therapeutics?

Iwami: In the light of our mission “Supporting Doctors”, it would be
important for us to provide unbiased information on them. On thedifference between these developed vaccines, there would be some
information made public only by each vaccine producer and some
not to be made public. In this light, the information to be sharedwithout any bias by the doctors taking care of patients having thevaccines would be most likely a possibility of the vaccines causing aside reaction in a person in good health. Also, I believe that Japanesein general tend to be extremely afraid of risks. Based on a goodunderstanding about such a particular national character ofJapanese, I think it would be necessary to be prudent in providing
the information about the vaccines.
JS: Looking at your board members, there seems to

be a great diversity in their backgrounds. Does thismean you are determined to promote Japanese
medicine through diversity of knowledge regardlessof speciality?

Iwami: I think we need three kinds of human resources for board
members of a health tech company. The first is medical doctors
working inside the medical service, like myself. This area isextremely professional and their unique professional knowledge
would be hard to access from outside of the medical professionals’community. Only medical professionals could see the business issue
in this area. There are also many stakeholders in this business andthe working experience of a medical doctor would be important inthis regard. The second one is a Chief Operations Officer (COO), a
business professional, an expert in earning stable profits, which is achallenge in this healthcare business. Thirdly, we need technology
experts in IT to achieve a big impact on the business. Without thesethree kinds of experts, we would not be able to achieve a stablebusiness performance. So our board member structure reflects thisbelief.
JS: In Silicon Valley, there are a variety of medical

ventures starting up. It does not seem to be unusual
to see a completely new medical and healthcare
business with collaboration between IT experts andmedical experts. Do you think such ventures will
increase?

Iwami: To our knowledge, there are a little less than 90 doctors inJapan who have started up a business. This means that starting up abusiness could be an alternative career path for a doctor in Japan
now, even though there are not so many pursuing it.
JS: There will be many gig-workers born as telework

prevails under the pandemic. They work on a job
without being bound by an organization’s interests.
Could such a change of working style trigger anincrease in start-up companies?
Iwami: In our age, that happens regardless of a pandemic. We live inan age where a side-business is recommended. If a side-business
contributes to the performance of the principal business, we will see
a change of perception about side-businesses, which would
encourage side-businesses among employees in a company. So I
think the psychological barriers to start-ups will be lowered. In
addition, we now have a working environment for collaboration
without having face-to-face meetings. So we do expect a rise instart-ups through collaboration.

Future Goals & Plans
JS: Could you please tell us of your future goals orplans?

Iwami: We are now finally starting to see a clear perspective of thethree main pillars of our business. I believe each of them will have asubstantive social impact and then we would be actively working on
those three principal jobs. On the other hand, having worked onservices for sharing medical and healthcare related information to
supporting services for primary care doctors or pharmacists, we are
now dealing with more valuable but high-risk information like that on
the medicine that an individual person is taking. This is a highly
sensitive area of work for our health tech industry. In the future, itwill be possible for us to deal with genetic information vital to humanlife and considered ultimately personal information. In this light, wehave a grave responsibility to protect the security of such sensitive
personal information.
JS: You started up a company triggered by increasingsocial distrust in medicine, as you mentioned. Thismeans that you are a social entrepreneur. Do you
think social entrepreneurs will increase from nowon?

Iwami: As I believe that all companies are working to resolve social
issues, I think anybody in connection with a company must be some
sort of social entrepreneur. If changes happen in the future, there will
be increasing numbers of people contemplating starting a new
business rather than just trying to be a principal player in thebusiness. There does seem to be a generation gap in thinking aboutbusiness. I think people in succeeding and future generations would
respect more the social contribution of business. I think this current
trend among young people is encouraging.
Written by Naoyuki Haraoka, editor-in-chief of Japan SPOTLIGHT, with thecooperation of Naoko Sakai who is a freelance writer.

Japan SPOTLIGHT • July / August 2021

17

COVER STORY • 9Interview with Renee Graham, Chairwoman of the APEC forum Policy Partnership on Womenand the Economy

A

PEC: Driving Innovation &Female Entrepreneurship

By Japan SPOTLIGHT
The contribution of women to revitalizing the economy today is key to enhancing its growth potential.
Underutilization of women’s abilities and talents will lead to a serious loss of human resources andhamper the competitiveness of industries. In particular, women are good at creating new businesses
related to consumer products. International discussions have been encouraging female entrepreneurship,with the OECD and APEC providing notable venues. APEC, in particular, has a special forum focusing on
empowering female entrepreneurship called the Policy Partnership on Women and the Economy.
Renee Graham has been chief executive of the Ministry for Women, New Zealand, since June 2017.
During her tenure as chief executive, the ministry has successfully gained agreement for an increased
50% target for women on public sector boards and an action plan to eliminate the gender pay gap in corepublic services. A key focus of the ministry’s work program is to improve outcomes for wāhine Māori. She
contributes to a number of public sector-wide steering groups and committees, including the Papa
Pounamu board for Diversity and Inclusion and the Women in Public Sector Summit organizing
committee. Prior to this appointment, she was policy director at the Ministry of Education.
In an interview granted to Japan SPOTLIGHT, she gives an insight into the role of APEC in encouraging
innovation and entrepreneurship among member nations, the APEC women entrepreneurs’ contribution to
the economy in the pandemic, and her future targets.
(Interviewed on April 22, 2021)

Mission & Role

kind of a broader system role and the role weplay in New Zealand. That is my job in New
JS: Could you please tell us a little bit
Zealand.
about yourself and your mission andMy other role is to be the chair of one of therole?
APEC forums, which is the Policy Partnership on
Women and the Economy (PPWE). I have been
Graham: My name is Renee Graham. I amelected to the chair for two years. I have taken
secretary for women and chief executive at theover from the Chilean chair. Nowadays we have
Ministry for Women, New Zealand. We are a
to work on a virtual platform, and that is a big
small government organization, and we work as
challenge for us.
the government’s principal advisor on achieving
The goal of PPWE is to advance the economic
better results for girls and women in New
integration of women in the APEC region for the
Zealand. We bring the voices, experiences, andbenefit of all members and to coordinate genderpriorities of different groups of New Zealandactivities across other APEC working groups.
Renee Graham
women to the government and other agencies
There are 12 other working groups attached toregarding what to do on these issues. Our vision
APEC working on a range of things like humanin New Zealand is that New Zealand is a great place to be a woman or
resources, illegal trade, etc. PPWE focuses on gender and women’s
girl, that wāhine Māori, our indigenous population, succeed as
economic empowerment, and its other responsibility is to ensure
Māori, and that gender is not a barrier to well-being. That is ourthat the other groups across APEC are supported to ensure that they
mission; that is what we aim for in New Zealand.
too have a focus on enhancing outcomes for women. In PPWE, we
A lot of other countries do not have a Ministry for Women. But wework to address the five key pillars impacting women’s economic
have been around since 1985.We work alongside other agencies. For
empowerment. We focus on access to capital, access to market,
example, the education agency is responsible for improving theskills and capacity building, women’s leadership and agency, andeducation outcomes for girls. We work with them on that. So that’s
innovation and technology.
34 Japan SPOTLIGHT • July / August 2021

https://www.jef.or.jp/journal/

One other key area that I am focussed on as the chair for PPWE thisyear and the next year is the implementation of last year’s roadmap.
That was the ninth roadmap named after the city we had PPWE in. We
developed the roadmap in Chile. The roadmap sets out what weshould be doing not only in PPWE but across the APEC economies inother workstreams – get some action within the economies and theother streams of work. We call it greater inclusive economic
development and participation of women in the Asia-Pacific.
We have five key areas of action in this roadmap: empowering
women through access to capital and markets, strengthening
women’s labor force participation, improving access of women toleadership positions in all levels of decision-making, supporting
women’s education, training and skills development and access in achanging world of work, and advancing women’s economic
empowerment through data collection and analysis. So that is myrole at APEC – to ensure that economies are focusing on theimplementation of the roadmap.

Enhancement of Women’s Capabilities
JS: Nations are working hard to enhance the status of

women. Women constitute a country’s largest
potential human resources. Even Japan is working
hard in this area. Could you please let me know thebackground of New Zealand’s project forenhancement of women’s capabilities? What madeNew Zealand adopt a policy of enhancing women’scapabilities at such an early stage of its
development?

Graham: I think it goes way back to the 1890s. New Zealand was thefirst country to grant women the right to vote. It happened in 1893.
While we haven’t always gotten it right, we have always been a little
bit progressive.
It is about how organized we can get and what we want fromgender equality. With the passage of time women have become moreadvanced in terms of gender equality; and in the last three or four
years, in particular, both society’s values and wants around genderequality and the political environment gave us a big opportunity toadvance and get what women had been talking about during thattime. So we took the opportunity and were able to drive in changes
in New Zealand. But we still have a long way to go. We still haveissues that face other economies, such as domestic violence andfamily violence. We still have a lot to do in those spaces. That’s why
we find instruments and mechanisms like APEC helpful, and whatthat means is that we can come together and share ideas, problems,and solutions and help each other out in those areas. I think one of
the advantages of APEC is that we can do all that together. We live in
different economies, but we all want to achieve the same results. So
that means that we should have good discussions whenever we are
together, really sharing our advice and problems during the APEC
sessions.

Role of APEC in Encouraging Innovation &Entrepreneurship
JS: How do you assess the role of APEC inencouraging innovation and entrepreneurship so far?

Graham: I’d like to hold off until about after June. What we are doing
this year is that across APEC all members are going to let us knowwhat they are doing in their particular workstream in order tosupport women. In June, I’ll look at all the information, which would
give us a good picture of the steps we are taking across member
economies to empower the economic achievement of women. I amquite optimistic. And I’m really taking on board last year’s roadmap –the goals that we have for women. I am taking on board what each of
the workstreams is thinking about how they can achieve better
outcomes for women through the work they are doing, which isreally powerful. That means it’s not just PPWE where they are
working to improve the outcome for women but the whole of the
APEC. After June, I’ll find out what they are actually doing to getbetter outcomes for women. We do have other PPWE activities likethe BEST Award. That is about sharing success stories of women inbusinesses. So the business side is quite encouraging as well. That’s
an example of the good work that is being done, and that’s why I amquite optimistic about the future.

Pandemic: New Challenges & Opportunities
JS: In your country, the pandemic has been very wellcontained. But it continues to pose a major challenge
to many other countries. Do you think the ongoingpandemic can offer us opportunities for innovationand entrepreneurship?

Graham: The pandemic has had a disproportionate impact on
women and girls not only in New Zealand but across the world. It
does not affect all women equally. In New Zealand, there were a few
disadvantaged groups before the arrival of Covid-19, and there are
more disadvantaged groups now – after the pandemic broke out.
From what we know from previous labor market shocks in New
Zealand, some of those disadvantaged groups will take three to six
years to get back to the level they were prior to the pandemic, which
gives quite a challenge to do something about it now – help those,
especially the women, who have been hit by Covid-19. There is acommon purpose among APEC members that we should be doing
something to respond to the current situation. We have a clear
opportunity to collectively improve the situation for women and girls.
The La Serena Roadmap is an important tool which sets high level
benchmarks in this area that we are focusing on. We’re taking stock
shortly of what economies are doing and that will be an important
assessment of where we’re at,
JS: As you said earlier, women are suffering due toJapan SPOTLIGHT • July / August 2021

35

the new employment situation, which seems to be
increasing difficulties in New Zealand. In Japan, forexample, non-permanent employees are mostly
women, and hence their service or income isunstable. In many cases, they face the risk of being
fired. In this regard, what kinds of policies are needed
to help women in New Zealand overcome thechallenges they face? Do you think yourentrepreneurship program can help them inovercoming the difficulties they currently face?
Graham: There were women in the tourism sector who lost their jobs
because there weren’t any tourists in New Zealand. That is whatgenerally happened in the country after the pandemic broke out. The
response from the government was quite generic and women had
access to the generic kind of support and tools that the government
implemented. So, for instance, we had wage subsidies – that helps
employers to keep people employed. If they had to take sick leave,
the government must pay for that. The generic response has
benefitted women. Nearly half of the wage subsidy was taken up by
women. And then we had the job creation programs as well thatwomen could benefit from. So the shown response from thegovernment in particular was generic, and that seemed to work. I
think that the response in New Zealand and in other countries mayneed to move into gender-responsive policies and processes –policies and approaches that are specifically needed for women. At
least we should have a dialogue and discussion about it, as women’s
needs might be different from men’s needs.

Female Entrepreneurship in New Zealand
JS: What have you to say about female

entrepreneurship in your country?

Graham: We have found that in New Zealand the number ofentrepreneurs slightly increased over the last year or so. Women andmen have capitalized on the availability of new ways of working andopportunities with the pandemic. You can now show a little bit ofentrepreneurship here. We also found women taking more unpaid
work in child care. Some of the women here have come out of thelabor market completely, and there has been a rise in family violence.
During the Covid era, many women in New Zealand took a leap
into entrepreneurship. Quite a few of them started their own
businesses after a wave of pandemic-related redundancies. Around
5,000 new businesses were registered with the New ZealandCompanies Office in 2020 – the only rise in the number ofcompanies in New Zealand in the past five years. There has been a
sharp rise in the number of businesses appearing online since thepandemic broke out, as consumers have made a conscious effort tosupport local products. Covid-19 caused 10,000 women
redundancies, and that is reflected in the number of women-led new
businesses.
36 Japan SPOTLIGHT • July / August 2021

Popular Sectors for Female
Entrepreneurship
JS: In Japan, IT business or digital business seems tobe quite popular in the area of entrepreneurship.
What are the popular sectors for female
entrepreneurship in New Zealand?

Graham: I think digital businesses are becoming quite popular here.
In this connection, I would like to make special mention of some ofthe successful Pacific women in business. Manukau-based charteredaccountant Ruth Sio-Lokam believes that it wasn’t until she went intobusiness for herself that she felt able to express the core Pacificvalues in her professional life. Kristy Morgan is a barrister, mother ofthree, and director of the Pacific dance company Embrace.
Inspiration for going into business came early for tech company
founder and director Falute Lene, who grew up in Samoa. A desire to
be able to work from home and care for her two children led Fijianborn Renuka Kumar to start a successful Pacific clothing business.
And New Zealand-born Sao Timaloa is a successful family lawyer.
This is a report on Pacific women in business in New Zealand; there
are case studies on pages 12-16: https://women.govt.nz/sites/
public_files/Pacific%20Women%20and%20Men%20in%20
Business.pdf.

Contribution to APEC in the Near Future
JS: As the new chair of the group, what do you think

will be your group’s contribution to APEC in the near
future assuming that the pandemic will continue for awhile?

Graham: All APEC members recognize the potential of women’scontribution across the Asia-Pacific, and that potential remains
untapped. Women’s empowerment is quite high on APEC’s agenda,
and it is likely to remain there for some time. I think we havecapitalized on some of the instruments that we have, such as lastyear’s roadmap. I also think that having a workstream like PPWE,
which is focussed on women, means that you will always have afocus on women-related issues and that you can make sure thatwomen are not overtaken. And that’s more important in a pandemicor post-pandemic environment. By using the roadmap, we canmonitor what is really going on and use that as evidence to bring
women to the forefront and to tell people about how women are
faring across the Asia-Pacific.

Written with the cooperation of Rajesh Williams who is a professional editor
and a writer with a background in instructional design, technical writing,technical editing, and teaching.

COVER STORY • 2

Digital Asia: Responding to Challenges
from GVCs Digitalization, US-China
Decoupling & the Covid-19 Pandemic

By Lurong Chen

Digitalization, US-China decoupling, and the coronavirus (Covid19) pandemic represent the three remarkable sources of change
faced by the world economy. Asia’s response to these challenges will
determine its economic prosperity and regional stability, as well as
the reconstruction of global value chains (GVCs) and theestablishment of a new world order. Digital transformation is not justabout disruptive innovation and technology adoption. More
importantly, it represents a new wave of massive technologicalprogress that will drive socio-economic transition and the changes ininternational relations in the 21st century. This article proposes ways
in which Asia could harness the digital economy as part of its
response to the long-term, medium-term, and short-term challengesof regional development.

Digitalization as a Global Trend in the Long Run
Digitalization can affect economic growth via its effect on reducing
trade costs, similar to the effect of the industrial revolution in the
18th and19th centuries and that of the information revolution in the20th century. In the first wave of massive technological progress
during the industrial revolution, the use of steamships and railways
drove down the cost of transportation. Mass production, economies
of scale, and industry-wide division of labor became feasible.
Producers and consumers in different countries benefited from tradewith each other. But at this stage, international trade was dominatedby trade in goods, and the main content of trade was final goods or
raw materials.
In the second wave of massive technological progress during theinformation revolution, the applications of information andcommunication technologies (ICTs) – mainly through their effect of
reducing the cost of communication – set the stage for the birth of
GVCs and lowered the threshold for countries to join theinternational division of labor. Since then, GVC participation has
become the new thinking on development, and the idea of economic
liberalization became widely accepted as the way a country could
facilitate its involvement in GVCs to pursue economic prosperity anddevelopment. To meet the needs for coordinating GVCs, service links– especially those of business and financial services – were making
great strides forward as well. As a result, the world economy became
further interconnected via GVCs. Increasingly, there is more to trade,and countries trade more.
Digitalization tends to extend the coverage of GVCs and increase
https://www.jef.or.jp/journal/

Author Lurong Chen

their sophistication by lowering the cost of people-to-people
connection, increasing information transparency to all GVCs, andblurring the boundaries between different links of the value chains.
Moreover, with the application of digital technologies and related
business models, the service sector will become much moreinnovative and productive. Digital-armed service links – either digital
enabled or digital born – will improve the capacity of GVC
coordination, facilitate the network extension, and allow GVCs toevolve toward an ecosystem that is better connected, smarter, andmore efficient.
However, the changes triggered by digitalization could be wider,deeper, and less predictable than ever before, especially with thedevelopment and the use of Artificial Intelligence (AI), big data, andthe Internet of Things (IoT). For instance, at the early stage of theInternet’s development, it was relatively easy for Internet users tohave their real life and that in the cyberspace separated.
But with the advance of digital technologies, the boundaries
between cyberspace and reality tend to evaporate over time. For
individuals, the virtual identity in the online world has to be mappedwith the physical one; while for countries, cyberspace, which wasconceived as borderless, is becoming an ever more integral part ofnational sovereignty.
On the one hand, news, opinions, and speech disseminated via theInternet and social media have increasing influence on real-life
activities and decision making. On the other hand, rules andregulations on online behavior, such as that of data flow, privacy,
consumer protection, competition, and cybersecurity, are reshaping
the cyber landscape and extend the current international order tocyberspace. Unavoidably, the diversity of countries’ attitudes towards
the governance of cyberspace (“cyber-governance”) and theconsequent policies represent the differences of the economic andlegal systems, institutions, social values, and even the ideologies
that are ubiquitous amongst countries.
For that reason, digital transformation will be a process marked bystrong competition and conflicts between different values, cultures,and social systems, and the ongoing dispute between the UnitedStates and China will be discussed in this broader context. Asia willbe the first to bear the brunt of the consequent shocks from their
possible decoupling.

Japan SPOTLIGHT • November / December 2021

9

Interpreting US-China Decoupling in the Context
of Global Digital Transformation
The economic cost of decoupling is high for the US, China, andthe rest of Asia. It is very likely that Washington’s restrictions onimports from China will generate more trade diversion than tradecreation effects. That means American producers will have to findalternative supply locally or from elsewhere in the world. Either
means higher costs and lower efficiency. Moreover, Beijing’s traderetaliation could damage American exports to the world’s mostpopulous market. Ultimately, consumers will have to bear the burdenin terms of higher prices.
Similarly, consumers and producers in China will also suffer
higher costs due to the trade war. Given the role that international
trade and foreign investment have played in promoting Chinese
economic reform, from a Chinese perspective, decoupling with the
US means not just the loss of the world’s largest market, but more
importantly, cutting off its main channel of gaining know-how.
For the rest of Asia, the network of regional production sharingthat involves both the US and China has been the cornerstone of
Asian development. In the past, the cooperative competition between
the US and China created a development friendly environment forother Asian countries, allowing them to benefit from capital inflows
and technology diffusion, as well as access to both large markets.
US-China decoupling will introduce uncertainty and probably makethe region less attractive to international capital and outsourced
activities.
In particular, the rising distrust in the high-tech area, especiallythat of digital technologies, symbolizes some deep-rooted difference
between the US and China. During the honeymoon period of the
US-China relationship, the existence of wide technology gaps andhigh economic complementarity provided plenty of space forcollaboration. For example, innovation and new designs from Silicon
Valley and Original Entrusted Manufacture (OEM) activities inShenzhen are linked via GVCs, creating a win-win situation for bothsides as well as the rest of the world. At the time, China was eager tolearn from the American experience and adopt best practices fromthe West as useful guidelines for its domestic reform, while the US
saw a rising China as a favorable factor in global stability anddevelopment.
The 2008 credit crunch seemed to have foreshadowed today’s
US-China dispute. The outbreak of the subprime crisis exposedsome deficiencies of the US economy. Although the crisis may nothave completely destroyed America’s image as a reference for
Chinese market reform, it seemed to have served as a wake-up callfor Chinese leaders and made them rethink whether those
10 Japan SPOTLIGHT • November / December 2021

supposedly good practices are really that good. China wascooperative in supporting the US to tame the fire in the capital
market, but has since then become more cautious in market
opening, especially in the fields of finance, media, and the Internet.
Increasingly, the US has felt the pressure of competition from
China, especially in the development of the digital economy. China
has started to take the lead in areas such as 5G infrastructure,
e-commerce, and fintech. Chinese companies such as Huawei andZTE are amongst the frontrunners in the global race to 5G, together
accounting for over 20% of global 5G technology patents. The
Chinese e-commerce market has maintained two-digit growth since2015. In 2019, China owned the world’s largest online marketplaceand contributed over two-fifths of global total e-commerce revenue.
The country also has the world’s largest group of e-payment users.
Its central bank, the People’s Bank of China, issued a digitalcurrency, the e-RMB, in April 2021. With such clear signs ofprogress, China is expected to be the first country to realise acashless society.
China is also catching up quickly in areas such as AI, big data,cloud computing, industrial Internet, and smart city building. But theway the Chinese government promotes its digital economy has beenquestioned by foreign competitors. For example, China’s restrictive
data policy and regulations on news censorship have acted as defacto barriers that have stopped major foreign digital giants fromentering the domestic market. While Baidu, Alibaba, and Tencent
were allowed to compete in the US market and even raise funds via
IPOs there, their American competitors – Google, Amazon, andFacebook – still see their door to the Chinese market remain locked.
Another example is that the overseas expansion of Chinesecompanies is often backed up by the government, giving themadvantages in global competition.
Such outstanding problems of non-reciprocity in market accesshave aggravated the distrust between Beijing and the White House,
especially when the US and China see accelerating digitaltransformation as part of the strategic focus of economic
development. On the one side, the White House may have read Madein China 2025 as a declaration of China’s ambition to challenge US
leadership in GVCs; while on the other side, Beijing may haveinterpreted Biden’s upholding of a hardline China policy as a sign thatin bilateral relations carrots from the White House will be scarce but
sticks will be plenty.
Asia’s development faces the challenge from the reconstruction of
GVCs resulting from US-China decoupling, combined with disruptivechanges triggered by new digital technologies. The Covid-19
pandemic provided a beta test on the effect of digitalization on
increasing the GVCs’ resilience.

The Covid-19 Pandemic: a Supply Chain Crisis
In the economic area, the Covid-19 pandemic can be seen as a
global supply chain crisis, with shocks coming from both the supply
and the demand sides. It started with a negative supply-side shock.
The world supply chains became fractured when China locked its
borders to prevent wider spread of the virus. Exports from China
suddenly halted, causing a shortage of supply of goods and services,
either final or intermediate, to the global market. As orders from theirdownstream clients in China were either cancelled or postponed,
foreign suppliers in the upstream of value chains encountered anegative demand-side shock. When Covid-19 turned into apandemic, countries’ lockdown measures worked like pushing a“Pause” button on GVCs, causing the global contagion ofplummeting of international trade and a short-term economic
recession.
Digitalization has been rising to prominence during the Covid-19
pandemic when digital technologies and related business models
backed up the government’s emergency response to the crisis, suchas the implementation of social distancing and lockdown measures.
The world’s number of Internet users increased by more than 100
million in 2020. More people have adopted online learning, working,and shopping, which has become an integral part of their daily lives
and has replaced offline activities. Without digital solutions thatempowered people and businesses, the Covid-19 pandemic could
have caused far greater harm.
The world economy had shown strong signs of recovery by the
first half of 2021, thanks to China resuming production, as well as
the efforts of countries’ stimulus measures, such as fiscal aid and an
easing of monetary policy, that had meant to pull the economy out ofdepression by stimulating demand. However, the Covid-19 pandemic
may persist for longer and harm the economy more deeply thanpolicymakers expected. Unless the supply side can quickly regain its
productivity and enter a growth track, the stimulus-driven recovery
will only be temporary, and the economy will face the risk of highinflation.

Digitalization in the Post-Covid-19 Recovery& Growth
Accelerating digital transformation will be of help to deal with this
supply side problem. First of all, GVCs’ digitalization (blending digitaltechnologies into the GVCs), especially with the application of big
data, AI, robotics, and IoT into production and management, tends tostrengthen the connection within the network and improve its overall
resilience. It is not the Covid-19 pandemic but policy measures in

response to it that have caused supply chains to disconnect andtransformed a global public health crisis into an economic crisis.
Measures like restrictions on people’s mobility and border
lockdowns seemed to affect more the links that involve intensive
labor participation than those with automatic control. The idea is tomake GVCs “smarter” by adopting digital tools, services, andbusiness models into the network and increase its resilience byreducing the risk of introducing shocks to the system through theireffect on humans.
Second, digitalization is the most important source of economic
power in the 21st century. The annual gross output of Silicon Valley
has been higher than Finland’s national GDP. Research andDevelopment and applications of digital technologies can unleash
market potential not only by giving birth to new industries, but also
via the combination with technologies in new materials and newenergies. Taking Industry 4.0 (4IR) in ASEAN as an example,
projections suggest that adopting 4IR will contribute 35%–40% of
incremental market value added to ASEAN within 10 years. For thewhole region, 4IR could bring an increase of about $210–$230
billion in output and a $40–$45 billion increase in revenue.
Digital technologies are normally interlinked and compatible with
one another. Combining different technologies could further givebirth to new products and new services, and generate new markets.
This could then multiply the market potential, create new job
opportunities, and provide a steady flow of innovation andproductivity improvement. As an example, AI – defined as a set oftechnologies that enables machines to perform human-like functions– has a great variety of applications in our economy and society.
Some have started being widely used in our daily life, such as
augmented research, intelligent agents, generative product design,
robotic process automation, autonomous vehicles and drones,
speech and image recognition, biometric recognition,
recommendation systems, and predictive systems.

Digitalization to Mitigate Shocks from US-China
Decoupling
To Asia, the cost of losing either the US or China will be very high.
Asia’s economic achievements in the past were inseparable from theinterlinkages of global demand, supply, and regional production
sharing via GVCs that supported the region to be the world’s largest
platform of exports. Regional production sharing in Asia, theso-called Factory Asia, functions on the basis of a multi-layered
network intertwined with intensive cross-border activities. Close
links with both the US and China contribute to increasing the region’s
overall competitiveness in the global market.
Japan SPOTLIGHT • November / December 2021

11

Although possible US-China decoupling cannot and will notchange the direction of the long-term trend of economic
digitalization, a long-lasting dispute would affect the trajectory ofdigital transformation and probably alter the resulting patterns. The
countries of ASEAN and East Asia should get ready for the changes.
It is important to strengthen the connection with both the US andChina, even though both sides have kept drifting apart. Slowing
down the pace of decoupling could win them more time to make theneeded adjustments. In case the decoupling forces GVCs to split into
two competing blocs, the region needs to make sure that the two
blocs overlap in Asia. The region shall have economic gravitation solarge that both the US and China will stick to the Asian market
despite their decoupling.
Developing the digital economy can help increase regionalcohesion and strengthen the region’s market gravitation in the global
economy. Unleashing Asia’s potential in the digital economy needs
regional collaboration in areas such as data flow, consumer
protection, cybersecurity, IPR protection, and dispute resolution.
With regional integration and digital transformation mutually
reinforcing, Asia could increase its weight in GVCs in the digital era
and have a greater say in regional and global affairs.

Accelerating Digital Transformation in Asia
In short, deepening regional integration and promoting the digital
economy will stay at the core of Asia’s long-term development
strategy. This is in line with the global trend of digitalization in thelong term. It could also help Asian countries work more closely
together to mitigate the negative impacts of the US-China dispute. In
the short run, this will be an important part of the region’s policy
response to deal with the economic shocks triggered by the Covid19 pandemic and possible inflation afterwards.
To accelerate digital transformation in Asia, policies in terms of thefollowing four aspects are worth considering. First, the digital
economy is also known as “creative economy” or “innovative
economy”. Supporting innovative economic growth needs innovative
policy thoughts. The diversity of Asian countries in their stage ofdevelopment and the structure of their economies will provide
policymakers with more flexibility and an enlarged policy space. In
addition to efforts on nurturing their own digital unicorns, a policy
focus will be the polish of the countries’ competitive edges byembracing digital technologies in traditional sectors, i.e. agriculture
and handicrafts.
Second, by changing the manner of people-to-people connections
and lowering its costs, digital transformation is not just an economictransformation, but also a process of social transformation that
12 Japan SPOTLIGHT • November / December 2021

contains changes in the way people live, work, and study. For Eastand Southeast Asia, improving people-to-people connections will bea policy focus, as they can provide necessary conditions to realize
the ambitions of regional development, such as eliminating
development gaps and promoting inclusive growth.
Third, rule setting to enable free flow of data with trust represents
a bigger challenge in improving digital connectivity, which remains at
the core of digital transformation and GVCs in Asia, when compared
to building data-related infrastructure. Improving connectivity means
not only better infrastructure for physical connectivity, but also asmoother and safer information flow in cyberspace.
Thanks to the widespread use of smartphones, the Internet, andtechnologies that facilitate data collection, processing, storage, anddistribution, technological barriers to data flow have been effectively
reduced. More data and information today are already digital-born –they were born to be borderless, and their life cycle exists incyberspace. But “trust” highlights the increasing concern about data
accuracy and safety and privacy protection. While the advance of ICT
facilitates the use of data, it also increases the risk that data could beillegally leaked, stolen, or misused. Free flow of data needs to besafeguarded by a series of backup policies, especially when data has
become the main carrier of value in the digital economy.
Asia is known for its gradualism and pragmatism in pushing
forward the process of regional cooperation. A similar strategy could
be applied to “trust building” in the field of cooperation in the digital
economy. For example, Asian countries could start with collaborationin harvesting the low-hanging fruits of the digital economy, such as
promoting e-commerce and facilitating digital trade, and then extend
to areas where cooperation requires greater mutual trust.
Fourth, promoting the digital economy calls for a broader
regulatory framework comprising a wide range of related issues –from consumer protection to competition. Although most of theseissues are not new and have been regulated previously, digitalization
has introduced new content and challenges. Unless it is accepted by
the market and adopted by the private sector, any proposed
regulatory system may fail to achieve its original goal of promoting
the digital economy. Preserving the voice of the private sector in thecycle of policy design and rule-making will be useful, and so isbalancing the interests of digital giants with those of small andmedium-sized enterprises.

Dr. Lurong Chen is a senior economist of the Economic Research Institutefor ASEAN and East Asia (ERIA), Indonesia. He received his Ph.D. in International
Economics from the Graduate Institute of International Studies (IUHEI), Geneva,
Switzerland.

COVER STORY • 5

A

sia in the Global Dynamics of Embracing
the Digital Revolution: Performance &Strategic Priorities for Policy Action
Author Khuong Vu

By Khuong Vu
Asia’s Efforts in Embracing the Digital Revolution
Asia is a major contributor to the rapid progress and penetrationof the digital revolution.

Contributions to frontier technology innovation
Four Asian economies – Japan, South Korea, China, and Taiwan –are among the leading nations that are at the forefront of the digital
revolution. According to the Statista online database (2021), thesefour economies are in the list of top 10 countries by patenting
activities in at least one of three frontier technologies: 5G, Artificial
Intelligence (AI), and the Internet of Things (IoT).
In addition, statistics from the European Patent Office (EPO) showthat China, Japan, and South Korea together with their companies
are among leading innovators in the two fundamental drivers of thedigital revolution – computer technology and digital communication(Table 1). Furthermore, the number of worldwide patent applications
grew from 2018 to 2019 at two-digit rates, which were faster for

TABLE 1Patent applications in 2019 in European office by country &company in fields of Computer Technology & Digital
Communication
Country

Rank

2019

2019
vs
2018

Share

Company

Rank

2019

Share

Computer Technology
US

1

4,866

+13.6%

38.1%

Alphabet

1

673

5.3%

China

2

1,356

+18.7%

10.6%

Microsoft

2

673

5.3%

Japan

3

1,212

-0.9%

9.5%

Samsung

3

630

4.9%

Germany4

1,130+13.8%

8.8%

Huawei

4

382

3.0%

South Korea

5

830

+6.4%

6.5%

Intel

5

339

2.7%

OEPO2*

6

824

+3.5%

6.5%

Siemens

6

324

2.5%

France

7

587

-3.0%

4.6%

Sony

7

284

2.2%

UK

8

467

+24.5%

3.7%

Philips

8

215

1.7%

Netherlands

9

411

+5.7%

3.2%

Alibaba

9

173

1.4%

Sweden10

252+24.8%

2.0%

Apple

10

167

1.3%

8,914

69.8%

15.9%

Others

Total

–

–

839

12,774+4.9%+10.2%

6.6%

100%

Others

Total

Digital Communication––

12,774

100%

China

1

3,736

+64.6%

26.4%

Huawei

1

2,260

US

2

3,684

+14.6%

26.0%

Ericsson

2

1,227

8.7%

Sweden3

1,301+11.8%

9.2%

Qualcomm

3

1,061

7.5%

Japan

4

1,270

-5.6%

9.0%

Samsung

4

567

4.0%

South Korea

5

1,230

+36.1%

8.7%

LG

5

545

3.8%

Germany6744+12.9%

5.2%

OPPO

6

496

3.5%

OEPO1*

7

558

-6.5%

3.9%

Sony

7

424

3.0%

France8403-18.3%

2.8%

Nokia

8

388

2.7%

Finland

9

347

0.0%

2.4%

ZTE

9

287

2.0%

UK

10

240

+7.1%

1.7%

Intel

10

236

1.7%

Others

–

662

+4.4%

4.7%

Others

–

6,684

47.2%

Total

–

14,175+19.6%

100%

Total

–

14,175100%

Note: *EPO states consist of 38 member states of the European Patent Organisation, including the 28 states of the EU at the time; OEPO1 are the EPO
states other than Germany, France, Finland, and UK; OEPO2 are the EPO states other than Germany, France, UK, the Netherlands, and Sweden.

Source: Author’s compilation using data from European Patent Office (EPO), Patent Index 2019; available athttps://www.epo.org/about-us/annual-reports-statistics/statistics/2019.html

https://www.jef.or.jp/journal/

Japan SPOTLIGHT • November / December 2021

23

digital communication (19.6%) than for computer technology(10.2%). In this global innovation vibrancy, China far outperformed
the world aggregate, growing at 64.6% in digital communication and18.7% in computer technology, while South Korea grew faster than
the world in the former (36.1%) but slower in the latter (6.4%).
Table 1 also shows that Asian companies hold leading positions indigital innovation in the business sector. In the list of the world’s top
10 companies in computer technology innovation, four are from Asia
(Samsung, Huawei, Sony, and Alibaba); while in the list for digitalcommunication, six are from Asia (Huawei, Samsung, LG, OPPO,
Sony, and ZTE).

ICT development and adoption
Regarding development and adoption of Information andCommunications Technology (ICT), Asia has made remarkableachievements in both scale and speed. As shown in Table 2, theAsia-Pacific accounts for more than 50% of the world’s total in most
key indicators on ICT adoption, including mobile phone (55.3%),
mobile broadband (56.6%), and fixed broadband (54.7%). In termsof speed, the compound average growth rate (CAGR) over 20002018 for the Asia-Pacific is higher than the world average across ICT
adoption indicators: 27.7% vs 21.7% for mobile broadband; 11.7%
vs 8.4% for fixed broadband; 18.8% vs 15.6% of population coveredby 4G networks; and 41.9% vs 34.0% for international bandwidth.

The fact that Asia’s share in the world’s population covered by 4G
networks (61.7%) is larger than that by 3G networks (57.2%)
supports the claim that Asia has tended to move faster than theworld average in embracing new mobile technologies.
Asia is also a leading player in adopting digital applications. For
example, Asia handled a total online purchase of $2,448 billion in
2020, accounting for 57% of the world total value of retaile-commerce. For comparison, these respective figures are $749 billion(18%) for North America and $498 billion (12%) for Western Europe.

Investment in frontier digital technologies
Investment in frontier digital technologies is an important measureof efforts to advance in the digital age. Three noteworthy
observations are salient in Table 3.
First, the Asia-Pacific accounts for more than one-fifth of the
global market in each of the core frontier digital technologies, which
is 23.2% for Cloud Computing, 22.0% for Big Data and Analytics,
23.5% for Mobility/Social Media, 22.5% for Cybersecurity, 23.9% for
AI, and 22.4% for IoT. In addition, from 2014 to 2019 the region
grew faster than the world in the total investment in all the core
digital technologies (21.2% vs 18.4%) and in five of them the figures
were: Cloud Computing (18.6% vs 15.0%), Big Data & Analytics(23.5% vs 18.7%), Mobility/Social Media (24.7% vs 19.3%), Cyber
Security (21.7% vs 19.0%), and IoT (19.1% vs 17.7%).

TABLE 2

Key ICT development & adoption indicators by region in 2020
RegionMobileMobileBroadband

Fixed
Broadband

3G

International
Bandwidth(Tbit/s)

4G

Total subscribers/users/covered population (million)
Africa

882

354

6

829

475

11

Arab States

427

261

35

396

270

35

Asia-Pacific

301

4,503

3,296

644

4,139

4,057

CIS

360

213

47

215

196

19

Europe

847

689

227

679

671

153

1,129

1,010

The Americas
WORLD

8,148

5,823

1,177

218

7,230

972

6,571

903

141

1.7%

World share

660

Africa

10.8%

6.1%

0.5%

11.5%

7.2%

Arab States

5.2%

4.5%

3.0%

5.5%

4.1%

5.3%

Asia-Pacific

55.3%

56.6%

54.7%

57.2%

61.7%

45.6%

CIS

4.4%

3.7%

4.0%

3.0%

3.0%

2.9%

Europe

10.4%

11.8%

19.3%

9.4%

10.2%

23.2%

The Americas

13.9%

17.3%

WORLD

100.0%

100.0%

Africa9.2%

Arab States

18.5%

13.4%

13.7%

21.3%

100.0%

100.0%

100.0%

100.0%

37.8%

16.1%

11.5%

39.9%

45.8%

3.2%

25.0%

17.0%

6.0%

29.6%

43.2%

Asia-Pacific

5.5%

27.7%

11.7%

4.8%

18.8%

41.9%

CIS

1.2%

13.6%

9.4%

5.5%

14.3%

31.0%

Europe

1.1%

13.7%

4.1%

1.2%

6.1%

25.6%

The Americas

2.5%

15.6%

5.0%

1.8%

4.9%

29.4%

WORLD

4.5%

21.7%

CAGR (2010-2020) *

8.4%

4.7%

15.6%

34.0%

Notes: CIS=Commonwealth of Independent States; * the period of compound average growth rate (CAGR) is 2015-2020 for population covered by LTE/
WiMAX networks and International Bandwidth.

Source: ITU

24 Japan SPOTLIGHT • November / December 2021

TABLE 3

Digital transformation market size & growth by region
World

North
America

EuropeAsia-Pacific

Latin
America

MEA

Market size in 2020 (US$ million)
Cloud Computing

129,589

44,94431,55530,015

13,787

9,288

Big Data and Analytics

83,01528,893

21,846

18,224

8,082

5,971

Mobility/Social Media

104,901

35,31426,70024,655

10,935

7,297

Cybersecurity

61,811

20,867

16,991

13,936

5,705

4,312

AI

49,265

16,052

13,35011,792

4,754

3,317

IoT

23,965

8,026

6,068

5,360

2,853

1,659

Others*17,244

6,421

4,855

3,216

1,426

Total

469,790

1,327

160,517

121,365

107,198

47,542

33,171Market share in 2020 (%)

Cloud Computing

100.0

34.7

24.4

23.2

10.6

7.2

Big Data and Analytics

100.0

34.8

26.3

22.0

9.7

7.2

Mobility/Social Media

100.0

33.7

25.5

23.5

10.4

7.0

Cybersecurity

100.0

33.8

27.5

22.5

9.2

7.0

AI

100.0

32.6

27.1

23.9

9.6

6.7

IoT

100.0

33.5

25.3

22.4

11.9

6.9

Others*

100.0

37.2

28.2

18.6

22.8

8.3

10.1

7.7

Total

100.0

34.2

25.8

2014-19 growth, CARG (%)

7.1

Cloud Computing

15.0%

11.2%

13.8%

18.6%

17.3%

18.0%

Big Data and Analytics

18.7%

17.8%

15.8%

23.5%

20.4%

18.2%

Mobility/Social Media

19.3%

17.2%

16.6%

24.7%

22.1%

19.0%

Cybersecurity

19.0%

15.2%

20.7%

21.7%

19.4%

22.4%

AI

22.7%

24.7%

24.5%

18.1%

15.7%

25.8%

IoT

17.7%

16.1%

19.4%

19.1%

17.2%

21.1%

Others*

17.5%

18.1%

19.1%

13.6%

11.4%

21.2%

Total

18.4%

16.8%

17.6%

21.2%

19.0%

20.0%

Notes: MEA=Middle East and Africa; * Others include blockchain and robotics.

Source: M&M (2020)

Exports of ICT goods and services
Asia is a major player in the global supply of ICT goods and asignificant contributor to the world’s ICT services exports. From
Table 4, the following observations stand out.
First, East Asia and the Pacific (EAP) accounts for more than 70%of the world’s total ICT goods exports, with a total value of US$1,608
billion in 2019. The main contributors to this performance are China($662 billion; 30% of the world’s total), South Korea ($140 billion;6.3%), Singapore ($115 billion; 5.2%), Vietnam ($93 billion; 4.2%),
and Malaysia ($77 billion; 3.5%), Japan ($56 billion; 2.6%), Thailand($35 billion; 1.6%), and Philippines ($35 billion; 1.6%). It should be
noted, however, the world share of EAP in this measure slightly
declined from 2017 to 2019 as the world’s total grew faster (from$1,992.4 billion to $2,207.9 billion or 5.3% per year) than EAP (from$1,493.8 billion to $1,607.7 billion or 3.7% per year). This trend isalso observed for most EAP countries, with the exception ofVietnam, the Philippines, and Malaysia.
On ICT services exports, India stands out as the noteworthy outlier
with a total value of $78.5 billion, accounting for 14.6% of the world
total in 2017. Other significant Asian players in this front are China($27 billion, 5%), Singapore ($11.3 billion, 2.1%), the Philippines($5.8 billion, 1.1%), Japan ($5 billion, 0.9%), South Korea ($4.3
billion, 0.8%), and Malaysia ($2.7 billion, 0.5%). In total, Asia claims
more than a quarter of the world ICT services exports, with a total
value exceeding $134 billion.

Asian Countries in the Global Dynamics
of Digital Evolution
To capture a nation’s position in the global dynamics of digital
evolution, the Digital Evolution Scorecard developed by scholars at
Tufts University’s Fletcher School in partnership with Mastercard
provides valuable insights. This approach (“Which Economies
Showed the Most Digital Progress in 2020” by Bhaskar Chakravorti,
Ravi Shankar Chaturvedi, and Ajay Bhalla, Harvard Business Review,Dec. 18, 2020; https://hbr.org/2020/12/which-economies-showedthe-most-digital-progress-in-2020) assesses the digital evolution of
90 economies along two dimensions: digital evolution state (DES)
and digital evolution momentum (DEM). While the DES indicates thedigital state of an economy, the DEM captures the country’s progresson this measure over the past 12 years. Based on the DES in 2019
and the DEM over 2008-2019, Chakravorti et al. classify the 90
Japan SPOTLIGHT • November / December 2021

25

TABLE 4

Asia’s ICT goods & services exports
ICT goods exports
EconomyValue(US$ Bil.)
2019

2017

ICT services exports% of goods exports

Share in world (%)

2019

2019

2017

2017

Value
(US$ Bil.)% ofservices
exports

Share in
world
(%)

2017

2017

2017

China

662.4

612.7

26.5

27.1

30.0

30.8

27.0

12.7

5.0

India

6.5

2.6

2.0

0.9

0.3

0.1

78.5

42.4

14.6

Indonesia

4.7

5.0

2.8

3.0

0.2

0.3

1.0

4.0

0.2

Japan

56.4

58.3

8.0

8.4

2.6

2.9

5.0

2.7

0.9

South Korea

139.7

141.9

25.8

24.7

6.3

7.1

4.3

4.8

0.8

Malaysia

77.4

67.7

32.5

31.0

3.5

3.4

2.7

7.2

0.5
1.1

Philippines

34.8

24.6

49.0

35.9

1.6

1.2

5.8

16.5

Singapore

114.5

119.6

29.3

32.0

5.2

6.0

11.3

6.6

2.1

Thailand

35.3

38.1

14.4

16.1

1.6

1.9

0.5

0.6

0.1

Vietnam

EAP*

EAP & India

Memorandums

92.5

1,607.7

1,614.2

71.9

35.0

1,493.8

25.2

1,496.4

–

33.5

24.9

4.2

72.8

3.6

75.0

–

>54

–

73.1

75.1

>134

–

>10%

69.0

–

OECD members

754.8

726.2

6.8

7.0

34.2

36.4

370.1

9.5

US

143.6

146.6

8.7

9.5

6.5

7.4

42.2

5.1

World

2,207.9

1,992.4

11.5

11.2

100.0

100.0

536.0

–

6.4

10.4

>25%

7.9

100.0

Notes: data on ICT goods exports are for 2019 and on ICT services exports are for 2017; data for Taiwan is not available. *EAP= East Asia & Pacific.

Source: WDI (2021)
CHART

Digital Evolution Score

Asia in the global dynamics of digital evolution
economies into four groups: Stand-Out,
Stall-Out, Break-Out, and Watch-Out
100.0
Singapore(Chart).
Stall-OutStand-OutThe Stand-Out group includes economies
90.0
USHong Kong
with both high levels of digital evolution
TaiwanUK
South Korea
and a strong momentum in making their
80.0
CanadaGermany
digital evolution advancement. Among 13
Japaneconomies in this group, five are from Asia:
FranceMalaysia
70.0
Singapore, Hong Kong, South Korea,
Taiwan, and Malaysia. Note that only two
China
Italy
60.0
G7 economies – the US and Germany –Thailandbelong to this group. The authors identify
Indonesia
50.0
six common features shared by the StandVietnam
Out economies:
India
Sri Lanka(i) Expanding adoption of digital
40.0
Philippines
consumer tools such as e-commerce
Pakistanand digital payments.
Bangladesh
30.0
Laos
Cambodia(ii) Attracting, training, and retaining
Break-Out
Watch-Outdigital talent.
20.0
20.0
30.0
40.0
50.0
60.0
70.0
80.0
90.0
(iii) Fostering digital entrepreneurial
ventures.
Digital Evolution Momentum(iv) Providing fast, universal, fixed andSource: Compiled by the author based on Bhaskar Chakravorti, Ravi Shankar Chaturvedi, and Ajay Bhalla
mobile broadband Internet access.
(v) Specializing in the export of digital
goods, services, or media.
The Break-Out group includes the economies that are limited in(vi) Coordinating innovation between universities, businesses, andexisting levels of digital evolution but are making rapid progress indigital authorities.
digital advancement. Among 32 economies in this group, seven arefrom Asia – China, India, Indonesia, Vietnam, Thailand, Bangladesh,and Cambodia. It is worth noting that China is a noteworthy outlier in
26 Japan SPOTLIGHT • November / December 2021

this group with far stronger performance in the digital advancing
momentum. According to the authors of this study, the countries inthis group share the following four characteristics in policy
prioritisation:(i) Improving mobile Internet access, affordability, and quality tofoster more widespread adoption.
(ii) Strengthening institutional environments and developing
digital regulations.
(iii) Generating investment in digital enterprises, funding digital
R&D, training digital talent, and leveraging digital applications
to create jobs.
(iv) Taking steps to reduce inequities in access to digital tools
across gender, class, ethnicity, and geographic boundaries(though many access gaps still remain).
The Stall-Out group comprises countries with high levels of digital
evolution but lacking vigour in making continuous digitaladvancement. Among 19 economies in this group only Japan is from
Asia. According to the authors of this study, to regain their digital
evolution momentum, the Stall-Out countries should take thefollowing four strategic policy priorities:(i) Safeguarding against “digital plateaus” by continuing to invest
in robust institutional foundations, regulatory environments,
and capital markets to support ongoing innovation.
(ii) Continuing to use policy tools and regulation to ensure
inclusive access to digital capabilities and to protect all
consumers from privacy violations, cyberattacks, and otherthreats.
(iii) Attracting, training, and retaining professionals with digitalskills, often through reforming immigration policies.
(iv) Identifying new technological niches and fostering
environments friendly to innovation in those areas.
The Watch-Out group consists of economies that face limitations
in both digital evolution and momentum to make digitaladvancement. Among 26 economies in this group, four are from
Asia: the Philippines, Sri Lanka, Laos, and Pakistan. According to theauthors of this study, the Watch-Out economies can look to BreakOut economies as role models, prioritizing the following policy
measures:(i) Making long-term investments to address basic infrastructuregaps.
(ii) Creating an institutional environment that supports safe,
widespread consumer adoption of digital products andservices, especially those that enable productivity and job
creation.
(iii) Promoting initiatives (particularly through public-private
cooperation) that invest in digital access to historicallydisadvantaged segments of the population.
(iv) Promoting applications that solve pressing needs and could
therefore act as catalysts for widespread adoption of digital
tools.

To have a rough assessment of the dynamism of digital evolution
for a given geographic region in the global dynamics described inthis study, one can use the ratio of the number of its countries in theStand-Out and Break-Out groups to its total number of countries. For
Asia, this ratio is (5+7)/(5+7+1+4)=12/17=71%, which is muchhigher than the ratio for the world sample, which is (13+32)/(13+32+19+26)=45/90=50%.

Contributions of ICT to Economic Growth in Asia
The channels through which ICT affects economic growth
As the ICT revolution has profoundly transformed the way people
communicate, work, and spend time, it has also significantly
contributed to economic growth in most nations. The ICT revolution
can affect economic growth through several channels, which include
the following.
First, ICT boosts learning and innovation. ICT evolution has enabledbillions of people to have unprecedented opportunities and capabilities
in accessing global knowledge, exchanging ideas, and distributing
their innovative products and services. This development, which
substantially reduces the costs of learning and innovation while
increasing their speed and potential rewards, is an important channel
for ICT to have long-term substantial effects on economic growth.
Second, the digital revolution fosters investment in digitaltechnologies, which improves operational efficiency and expansion
across sectors, especially in banking and finance, manufacturing,energy, and retail. Through this channel, ICT has a direct tangible
effect on economic growth.
Third, ICT bolsters the effectiveness of markets and institutions byfostering transparency and predictability, improving the quality ofinvestment decisions, and cultivating attitudes about embracingchange. These capabilities collectively enhance the quality andsustainability of growth.
Fourth, ICT fosters the creation of synergistic value throughcollaboration platforms and sharing economy models. Through thischannel, ICT enables individuals and companies to employ global
resources to meet global demand in real time. Uber, Grab, Airbnb,
Amazon, and Alibaba can serve as prominent examples.
Fifth and finally, the ICT revolution opens a new era, in which all
stakeholders – from governments to businesses, from academics toindustrial associations – have to rethink and reform their traditional
development models and approaches. As a result, not only existing
resources will be used more productively but many new resources
will surface for value creation. For example, smart city development
and green transformation are new areas of growth that many
countries are embracing in economic strategies.

Measuring the contribution of ICT to economic growth
One can quantitatively capture the contribution of ICT to economic
growth, using different approaches and assumptions, which may not
produce the same estimates. In the literature, growth accounting andmeasurement of the digital economy are the two main existing
methods.
Japan SPOTLIGHT • November / December 2021

27

TABLE 5

Asia’s ICT goods & services exports
2000-2010
Region/GroupGDP
Growth(%)

2010-2018

Sources of Growth (% point)
Capital input

Labor input

Total

ICT

NICT

Total

LQ

Hrw

TFP

GDP
Growth(%)

0.84

Sources of Growth (% point)
Capital input

Labor input

TFP

Total

ICT

NICT

Total

LQ

Hrw

3.57

2.14

0.37

1.77

0.86

0.30

0.56

0.57

World
(120 Economies)

3.83

2.26

0.51

1.75

0.73

0.35

0.38

G7 Economies (7)

1.56

1.30

0.48

0.81

0.18

0.31

-0.13

0.08

1.89

0.98

0.36

0.62

0.94

0.25

0.68

-0.03

Non-G7 (19)

1.98

1.78

0.52

1.26

0.73

0.26

0.47

-0.53

1.61

1.15

0.34

0.81

0.71

0.27

0.44

-0.25

Developing Asia (16)

7.61

3.92

0.64

3.28

1.00

0.38

0.62

2.69

6.42

3.50

0.41

3.09

0.75

0.35

0.40

2.17

Latin America (16)

3.09

1.76

0.34

1.42

1.53

0.57

0.96

-0.19

1.51

1.71

0.25

1.46

0.86

0.34

0.52

-1.06

Eastern Europe (27)

4.69

1.02

0.42

0.59

0.48

0.27

0.21

3.19

2.33

0.99

0.23

0.76

0.42

0.20

0.22

0.92

Sub-Saharan Africa
(20)

5.72

2.66

0.42

2.24

1.26

0.22

1.04

1.79

3.55

2.48

0.28

2.20

1.29

0.16

1.13

-0.22

North Africa & Middle
East (15)

4.34

3.94

0.56

3.38

1.89

0.48

1.42

-1.49

3.28

3.40

0.52

2.87

1.45

0.45

1.00

-1.57

Canada

1.84

1.73

0.56

1.17

0.76

0.17

0.59

-0.65

2.07

1.17

0.25

0.93

0.88

0.15

0.73

0.02

Germany

0.90

0.90

0.34

0.56

0.18

0.29

-0.11

-0.19

1.78

0.79

0.23

0.55

0.61

0.10

0.51

0.38

France

1.24

1.13

0.33

0.80

0.45

0.24

0.21

-0.33

1.27

0.85

0.34

0.51

0.44

0.31

0.12

-0.02

UK

1.60

1.36

0.42

0.94

0.53

0.35

0.18

-0.29

1.91

0.96

0.19

0.76

1.07

0.26

0.81

-0.11

Italy

0.31

1.09

0.26

0.83

0.40

0.23

0.17

-1.18

0.08

0.26

0.19

0.07

0.05

0.11

-0.06

-0.22

Japan

1.22

1.23

0.51

0.72

0.13

0.38

-0.25

-0.13

1.28

0.73

0.27

0.46

0.42

0.25

0.18

0.12

US

2.03

1.41

0.57

0.84

0.02

0.32

-0.30

0.60

2.40

1.19

0.47

0.71

1.33

0.31

1.02

-0.12

G7 economies

Source: Author’s calculation, using results from Dale Jorgenson and Khuong Vu ( 2021)

Growth accounting
The growth accounting method allows one to estimate thecontribution of investment in ICT assets as a source of economic
growth. Table 5, which is based on the data and method used by theG20 and the world economy (“The G20 and the world economy:
Performance and prospects” by Dale Jorgenson and Khuong Vu,
Journal of Policy Modeling, 2021; https://doi.org/10.1016/j.
jpolmod.2021.02.006), reports results of growth decomposition fordeveloping Asia and other groups of countries over two periods,
2000-2010 and 2010-2018. The sources of GDP growth over a
period for a given group are decomposed into the contributions ofcapital inputs, labor inputs, and total factor productivity (TFP). The
contributions of capital inputs, in turn, include those of ICT capitaland non-ICT (NICT) capital, while the contributions of the labor
inputs come from two sources: labor quality (LQ) and hours worked(Hrw). Table 5 also reports the growth decomposition results forJapan and other G7 economies for comparison. Several observations
are notable.
First, the contribution of ICT capital to economic growth indeveloping Asia, which is 0.64% points for 2000-2010 and 0.41%
for 2010-2018, is larger than that for other groups in each respective
period.
Second, developing Asia also outperformed other groups on TFP
growth in both the periods, which may imply that the regions’ strong
efforts to embrace the digital revolution as presented above haveenhanced its economic growth not only through the direct
28 Japan SPOTLIGHT • November / December 2021

contribution of ICT investment but also by increasing the efficiencyof resources allocation and use.
Third, developing Asia was also stronger than other groups in thecontributions of NICT capital and labor quality, which implies thatcreating a favorable environment to promote investments in analog
assets and human capital development are also needed to enable a
country to benefit more from investment in digital assets. This, to acertain extent, explains the high GDP growth of developing Asia inboth periods.
Table 5 shows that the contribution of ICT to GDP growth is larger
for Japan (0.51% points in 2000-2010 and 0.27% points in 20102018) than for most G7 economies, with the exception of the US (inboth periods), Canada (2000-2010) and France (2010-2018).
Furthermore, Japan’s growth in the second period (2010-2018) wasstronger than in the first period (2000-2010), with significant
improvements in both HrW and TFP growth, which tends to suggest
overall effects of ICT investments in Japan’s economy.

Measurement of the digital economy
Examining the digital economy is an increasingly important
approach to capture the effect of ICT to economic performance.
“Defining and Measuring the Digital Economy” by Kevin Barefoot,Dave Curtis, William Jolliff, Jessica R. Nicholson, and Robert
Omohundro (US Bureau of Economic Analysis (BEA), 2018; ★★★
https://www.bea.gov/sites/default/files/papers/defining-andmeasuring-the-digital-economy.pdf) introduces a framework formeasuring the digital economy, which is based on the OECD’s digital
economy measurement work. This framework estimates the digital
economy in its three major components: (i) the digital-enabling
infrastructure, which include communication and computer
hardware, Internet-enabled devices, computer software, cloudcomputing services, and other ICT support services; (ii) the digitaltransactions (e-commerce), which include economic gains fromonline trade and sharing economy transactions; and (iii) the content
that digital economy users create and access (“digital media”), which
include online education and entertainment, social media, and big
data. It should be noted that this approach is a low-end estimate of
the size of the digital economy given the fact that digital technologies
have penetrated across economic sectors and activities.
According to the estimates provided by the authors, the US digital
economy totaled $1,209.2 billion in 2016, which accounts for 6.5%of total US GDP ($18,624.5 billion). Furthermore, during the period
from 2006 to 2016, the US digital economy grew (in real terms) at
an average annual rate of 5.6%, which is much faster than thegrowth rate of 1.5% observed for the overall economy.
While this method is a good start, it appears to underestimate thesize of the digital economy. Dr. Sun Ke, who is from the China
Academy of Information and Communication Technology (CAICT),
combined the growth accounting and the study by Kevin Barefoot
and others (“A CAICT Approach to Measuring Digital Economy:
Definition, Methodology and Key Findings”, 2018; http://www.stats.
gov.cn/english/pdf/202011/P020201103357050683304.pdf) to seeka more comprehensive measurement of the digital economy.
According to him, in 2014 the digital economy was estimated at$7,490 billion (accounting for 44.7% of GDP) for the US, $2,180
billion (26.1%) for China, $1,580 billion (32.3%) for Japan, and $764
billion (30.3%) for the United Kingdom. In addition, China’s digital
economy increased at two-digit growth rates, amounting to $3,600(32.9% of GDP) in 2017. Although the method used by Dr. Ke may
have overestimated the size of the digital economy, it suggests that
China and Japan are among the world’s largest digital economies
and that the growth rate of the digital economy has been much fasterthan that of the overall economy.

Impacts of the Covid-19 pandemic on Asian economies
The Covid-19 pandemic has forced people, businesses, andgovernments across countries to take a quantum leap in digital
adoption. The pandemic has also posed strategic challenges tomultinational companies in strategies for supply change deployment
and management, which requires the companies to give a higher
priority to resilience and sustainability in addition to the traditional
objectives of efficiency and competitiveness. The Covid-19
pandemic, therefore, is expected to have more substantial impacts
on Asia, where the momentum of ICT adoption is relatively stronger
and the share of global manufacturing activity is larger incomparison to other parts of the word.
Thanks to the stronger momentum of Asian economies in thedigital revolution, the surge in digital adoption triggered by the
Covid-19 crisis is expected to be more sustained. That is, ICTdevelopment and digital transformation in Asia is expected toadvance faster in the post-pandemic era.
As a hub of exports of ICT goods and services, the rapid
expansion of markets for digital goods and services during the
pandemic has also benefited ICT-exporting Asian economies. In fact,
FDI inflows to the ICT industry in developing Asia, which ranges
from M&A to green field investment projects in data centers and ICT
production, increased in 2020 amid the global slowdown in FDI
activity. In the long term, however, many multinational companies
may consider reshoring, nearshoring, and diversification of theirproduction facilities to enhance the resilience of their global supply
chains, which will affect the FDI-reliant Asian economies.
The practice of work from home (WFH) and work from anywhere(WFA), which has become increasingly accepted since the Covid
crisis, is expected to work in favor of Asia’s abundance of skilledlabor supply. WFA will allow high-skilled workers from Asia tovirtually join the workforce of developed nations, which foster theregion’s employment, learning, and productivity growth.

Strategic Priorities for Policy Action
The digital revolution has profoundly changed the world and its
transformative effects are expected to be even more revolutionary inthe decades to come in every nation. As one of the most proactive
and dynamic places in embracing the digital revolution for economic
advancement, Asia has been reaping tremendous benefits from ICTdevelopment and digital transformation. However, the opportunities
and challenges will be much greater and more unpredictable in thetime ahead, which requires governments to promote the embrace ofthe digital revolution with a more effective digital strategy for policy
action. In this endeavor, governments need to work closely withrepresentatives from business, academia, and society to discuss anddecide the key issues concerning the six components of an effective
strategy: strategic objectives, global mega trends, core challenges,
strategic positioning, coordination, and continuous renewal.

Strategic objectives
These objectives are based on a comprehensive and integrated setof measures, which include quality of life, productivity, efficiency,
sustainability, and resilience. Note that while quality of life should be
the ultimate goal of the strategy, sustainability and resilience are
becoming important strategic priorities in addition to the traditional
strategic objectives – efficiency and productivity.

Global megatrends
Policy makers must deeply understand and appreciate the global
megatrends, which are shaping the world, to make their digitalstrategy and policy initiatives to best leverage the forces of change in
responding to development challenges. These global megatrends
include the following:

Japan SPOTLIGHT • November / December 2021

29

(i)

The VUCA: volatile (V), uncertain (U), complex (C), andambiguous (A), the trend globally observed in the digital
economy(ii) Globalization(iii) The rise of Asia(iv) Urbanization(v) Population aging(vi) The imperative of sustainable development(vii) Corporate social responsibility as the norm
(viii) The 4th industrial transformation.

Core challenges
Identifying the core challenges facing a country in its endeavor to
make leapfrogging advancements in the digital age is a criticalcomponent of digital strategy. For a typical country, these core
challenges are the old-fashioned mindset and cybersecurity. They
would pose insurmountable problems if not fundamentally
addressed. If governments are saddled by an old-fashioned mindset,
they would tend to rely on established assumptions and traditional
approaches, which would not be most effective in the digital age. For
example, the traditional approach of deregulation to promoteeconomic growth may not work best for the development of thedigital economy. Instead, governments need to work closely withbusiness, creating a sandbox for policy experimentations, toformulate the most effective regulatory framework that is critical todigital transformation.
Similarly, fostering competition and supporting infant industries
also require fundamental changes in conceptual thinking. Building
digital ecosystems and standing on the shoulders of tech giants toaddress the most challenging problems, ranging from climatechange and the Covid-19 pandemic to cybersecurity and terrorism,
may be far more meaningful than imposing heavy fines on the“monopoly behaviors” of some tech firms.
To develop a mindset most suited for the digital age, governments
should embrace three strategic shifts in their strategy and policy
action. The first shift is in positioning, which changes agovernment’s role from a regulator to a convener, who brings all
social stakeholders, especially tech firms and users, together to findthe most effective and forward-looking solutions to the mostdaunting shared problems. The second shift is in the way agovernment supports the digital sector and digital transformation,
which changes from subsidizing selected groups to enabling them tocreate more value from digital transformation. The third shift is in therole of government in managing change, which should shift frompromoting to pioneering. As a pioneering embracer of the digitaltransformation, a government will be far more effective in inspiring
the nation to advance faster in the digital era.
While the old-fashioned mindset will phase out over time,
cybersecurity is the core problem that will be persistent, extensive,
and increasingly formidable. The most effective way to deal with thiscore challenge is to give it the utmost priority in strategy
formulation, resource allocation, and operational and preparatory
activity. If the world, from governments and businesses to
30 Japan SPOTLIGHT • November / December 2021

academics and ordinary people, consider cybersecurity threats as a
type of Covid-19 pandemic or a looming terrorist attack, it will work
together most vigorously and innovatively to develop an effective
defense system to minimize losses caused by this problem.

Strategic positioning
While making substantial investments in digital infrastructure isessential, an effective digital strategy needs to establish a wise
strategic positioning to best leverage a country’s strengths and turnits physical vulnerabilities/limitations to new advantages in the digitalage. For example, Japan’s strengths in innovation and technologicalcapabilities should be leveraged to promote Industry 4.0
transformation worldwide. At the same time, Japan can turn its
constraints in labor immigration to vigorous efforts to make thecountry virtually borderless in engaging skilled labor around theworld to work with local businesses.

Guiding principles
An effective digital strategy establishes a clear set of guiding
principles for policy formulation and action. Among them, thefollowing seven principles are essential:(i) All strategic plans or actions should start with a clear
reimagination of the future with robust foresight.
(ii) Knowledge acquisition and innovation are the most powerfuldrivers of digital advancement.
(iii) People must be at the center of digital transformation.
(iv) Market mechanisms, competition, and incentives are
essential forces to promote development.
(v) Embracing globalization and digital partnerships provide astrategic move necessary for making leapfrogging progress.
(vi) Enhancing transparency and good governance is afoundational priority.
(vii) Promoting synergistic value creation should be of top priority.

Coordination, learning, and continuous renewal
This component requires the government to establish a national
steering committee or an agency in charge of coordinating
nationwide efforts in embracing the digital revolution and monitoring
the country’s progress in this endeavor. The government also needs
to work closely with the ICT sector, especially global tech giants,businesses, academics, and experts to build a robust digital
ecosystem for ICT development and digital transformation. Vigorous
efforts to reflect on past experiences, learn from international bestpractices, and develop foresights into the future are essential for thecountry to make continual strategic renewals for rapid advancementsin the digital age.

Dr. Khuong Vu is an associate professor at the Lee Kuan Yew School of
Public Policy, National University of Singapore.

COVER STORY • 4Interview with Dr. Stefan Kooths, Director of the Business Cycles & Growth Research Center at
the Kiel Institute, GermanyF

ree & Open Competition Would
Play a Key Role in Maintaining
Sustainable Growth in Europe

By Japan SPOTLIGHT
On the outlook for the economy in the European Union, we interviewed Dr. Stefan Kooths at the Kiel
Institute, a distinguished German think tank. He is an expert on macroeconomic forecasting.
(Interviewed on Aug. 12, 2021)

Optimism for Global
Economic Growth with thePandemic in 2022

extraordinarily high public debt-to-GDP
levels.
We have seen these debt positions typically
only after war periods, and it is for the first
JS: Most economists seem to betime in history that we see these pronounced
optimistic about the economic
debt levels in peacetime. They are so far only
growth of developed nations inmanageable because central banks keep
2021-2022, but do you share thisinterest rates at extremely low levels, and the
optimism?
big question for the years to come is, what
happens if market pressures would push for
Kooths: It very much depends on what you
higher interest rates because capital becomesmean by optimism. If optimism means the
scarcer, such that central banks should
crisis that was provoked by the Covid-19
increase interest rates in order to prevent anshock can be overcome much quicker thanoverheating of the economy; but, given thethat in the aftermath of the financial crisis inhigh debt positions, the fiscal and financial
2007-8, then I fully agree, yes. This time, thesituation might turn out to be too fragile tocrisis is of a different nature; it was more an
swallow rising interest rates. And the problem
Dr. Stefan Kooths
interruption of all-in-all workable production
is not limited to a couple of small countries –structures, and from a purely economic point of view, those kinds ofand we are also talking about large countries. Then the situation for
production interruptions are much easier to overcome than to solve
the world economy in the 2020s can become quite difficult in light ofthe problems that become apparent during a financial crisis. Why is
the starting point that we currently have achieved.
this so? Well, a financial crisis is typically just the symptom of
hardcore distortions within the economy, with a history of many
JS: The IMF recently issued a forecast that there will
be a serious divide between developed andyears before they finally manifest in such a crisis. Whereas thedeveloping nations in light of vaccine distribution. Do
Covid-19 crisis was more of an exogenous shock, and economic
you think that overcoming the pandemic andagents can cope much easier with those exogenous shocks, rather
achieving robust global economic recovery isthan with endogenous shocks which are much harder to cure.
dependent upon the extent to which developed
In terms of overcoming the crisis, the optimism is well-founded,nations could aid the developing nations?
but we should also pour some water in the wine because we havetremendous stimulus programs in particular in the United States at
Kooths: It would seem that vaccination is the key factor inwork, and we currently believe that they are overdosing to a large
overcoming the economic consequences of the pandemic. The
extent. It is not only to compensate or to get the economy running
no-Covid strategies seem to be extremely fragile because they areagain – that would not need such a tremendous stimulus program;vulnerable. We have just seen an example where a whole port wastherefore the question of overheating is on the table, in particular for
closed due to a single Covid-19 case, and so the world must learn to
the US economy. In the medium-term, the world economy faces
live with this virus. As far as I can understand, the medical experts
more and more tensions, in particular in the face of already18 Japan SPOTLIGHT • November / December 2021

https://www.jef.or.jp/journal/

tell us that this virus will not disappear whatever we do and howeverlong we close down our economies.
The shut-down strategy is clearly not the way to go for andtherefore we must protect people from getting seriously ill from thevirus, so the key factor here is vaccination. However, we should not
make the mistake of giving up all property rights for vaccination
production to have a short-term procurement for the developingworld for two reasons. First, the property rights themselves are not
the key bottleneck, rather the production possibilities. We are talking
about high-tech here, nothing that can be produced withoutsophisticated production infrastructures. Second, we must think
about the incentives that we would set if we now told those who ran
serious risks in investing in vaccine development if we just absorbed
their results for free. It is important to distribute vaccinations all over
the world, but this can work fully hand-in-hand with market forces.
Market forces mean that of course they will first serve thoseeconomies where the willingness to pay is the highest and these are
the advanced economies where you can sell your product for thehighest price.
Once the developed world is vaccinated, the next group of
customers comes on the stage and there is no reason why weshould believe that the producers of vaccines would not be willing toprovide them with their product. The development costs are alreadyearned by the sales in advanced economies, so we will see prices
going down because prices are connected to the willingness and theability to pay and therefore yes, we do need global vaccination
programs, but we do not need a severe government intervention inproperty rights to achieve this goal.

Euro Economy in 2022
JS: How do you envision economic growth in 2022?

The IMF and other economists have predicted around
4.5% for economic growth in the euro area in 2022.

Kooths: This is more or less in line with our numbers; we have 4.4%
for the euro area next year. We had a slump of 6.7% in 2020 and ourcurrent estimate for 2021 is 5.3% so we still have a way to go. Plus,
we must not forget that in a counterfactual scenario without theCovid-19 crisis, the economies would have grown so we are only
catching up at best to the growth path that we had seen prior to thecrisis.
Although the numbers look remarkable, it is a long time since wehave had 5 or 4 before the decimal point when talking about GDP
growth numbers, but, again, this is a catching-up process, and it is adifferent story when it comes to the potential growth rates that we
can expect for the years ahead. In many parts of the world,
demographics will show up in the potential growth numbers in a
substantial way.
To give an example for Germany: we come from a 1.5% growthrate of potential output over the most recent three or four decades.

So this was the normal number – German GDP grew year by year on
average by 1.5%. We are expecting this number to shrink tosomething like 0.5% until the end of the 2020s.
The trend here is similar in all aging economies, so we are facing asituation with much slower potential growth, and at the same time –and this per se is good news – populations are aging, so people live
longer but they also must be supported by social security systems
for longer or they must run down their savings. Either way, while
they are no longer contributing to production they continue to live as
consumers.
This will put a lot of tension on the social redistribution schemes,
and I can currently not see that the economies and in particular thegovernments have prepared themselves in an adequate way to face
this challenge. Plus, we must not forget again that we enter thisperiod with very high debt-to-GDP ratios; we are used to extremely
low interest rates that make the high debt positions appear
sustainable but every extra percentage point in terms of interest
which may well go hand in hand with the aging of populations will
make the whole situation more difficult. The medium-term outlook interms of macro-economic stability is rather gloomy, I am sorry tosay.
JS: The pandemic caused deflation in 2020, and there

was huge negative economic growth in European
economies. Even though the growth potential isgetting lower, is there a huge deflationary gap?

Kooths: No longer in 2022. We expect that the output gap next year
will be practically closed. Obviously in the US it will already be inpositive territory, which could mean overheating of the economy, buteven in the EU context we are talking about a more or less closed
output gap then. This is also the assessment of others such as theEuropean Commission and the OECD. The recovery is rather strong– we have seen a by-and-large V-shaped development – so yes, theslump was heavy, but the recovery was also very strong. We areback at normal capacity utilization rates rather quickly, again
compared to other types of crises like the financial crisis.
JS: Are you concerned about inflation in the euro area

economies?

Kooths: Indeed – we still see an ultra-loose monetary policy stance.
Last year, the euro system absorbed all extra net debt that wasissued by governments in the euro area. This was a 100%monetization of public debt. Liquidity is vast – we have unusedliquidity positions in the banking system that are at an absolutehistoric high.
During the crisis, a couple of extra spending programs wereadopted, and these will only work once the crisis is over. We would
be back at normal capacity utilization levels anyway, but then there
comes an extra stimulus from fiscal policy makers. Even in 2022, theJapan SPOTLIGHT • November / December 2021

19

fiscal rules have been switched off so we will see remarkable fiscal
deficits, even in a situation that is no longer shaped by the crisis.
There are a couple of ingredients that should make macro
economists look very closely at what is happening with inflation.
What might be misleading is that there are very good reasons thatthe current inflation numbers are heavily influenced by temporary
factors like reemergence of energy prices, and a couple of otherreasons which work only temporarily. The current inflation numbers
are 4% in Germany, and this is driven by temporary factors.
But, this does not mean that other factors might not have a
medium-term impact on inflation – just because we have some very
prominent temporary factors does not mean to say that there are noother factors that we should be concerned about.

Fiscal Debt a Key Structural Issue
JS: Turning to the issue of cumulative fiscal debt, thisis a very pressing structural issue not only for
Europe but other developed nations too. What should
be done in particular for EU members to reduce such
cumulative debt stemming from the pandemic?

Kooths: Well, the extra debt that was produced by the pandemic is
not really the key factor here. This was only another element thatcame on top of an existing high debt position. So we should not
narrow down the problem to saying that the pandemic caused a lotof extra debts. The debt positions were already at an alarmingly highlevel, and this crisis has only aggravated the problem.
The root cause of the problem is that policy makers all over theworld think that they should not consolidate because it is almost free
to take on extra debt. Policy makers are very much short-termoriented, and it is unpopular to consolidate and much more popular
to distribute money or reduce taxes and therefore they are justrelying on these very easy financing conditions, and they do notconsolidate enough to give monetary authorities more leeway in theirprimary mandate which is that of price stability.
This had already been the problem prior to Covid-19, so we must
not mistakenly assume that all our problems are due to thepandemic. The root causes of our macro-economic problems are
more of a hardcore type. The extra debt that comes from the crisis
can be swallowed; this is not really something that would be amacro-economic game-changer. The mechanisms behind fiscal
policymaking in general are causing the accumulation of more andmore debt.
JS: What do you think of the new 15% corporate tax

rate adopted by the G7 in Cornwall?

Kooths: I don’t think it will be a game-changer for the world
economy. There are still a lot of loopholes, plus the overall story thatis told that we have a problem with tax evasion in the corporate
20 Japan SPOTLIGHT • November / December 2021

sector is not really convincing on a broad basis; yes, there are somevery prominent examples. We all know about Google and Apple, but
if you look at the corporate tax-to-income ratios in OECD countries,
we do not see something like a race to the bottom. What we see isthat they are becoming already more similar, so the dispersion withincorporate tax rates has already declined prior to this agreement andtherefore I really do not see that this will fundamentally change theglobal tax landscape. This is more of a success for communication
towards national voters, in my interpretation.

Impact of Low Interest Rates
JS: Low interest rates could have some impact on theeconomy. Some economists would claim that thislow-interest policy could increase inefficiency in theeconomy because it could provide a stimulus toso-called “zombie companies”.

Kooths: I share these concerns on “zombification”. Of course, froman individual point of view, every insolvency looks like a failure, like adisaster even from a personal point of view. But from a systemic
economic point of view, it is important that those companies thathave lost a viable business model leave the market. Easy credit
conditions make it easy for them to survive. By staying in themarketplace, they are still absorbing scarce resources that could be
used much more productively elsewhere in the economy.
The most important scarce resources that we have are our
employees. Typically, the turnover in the labor market has a lot to dowith corporations that must close down, and the longer we keeppeople in occupations where they are not really productive or not as
productive as they could be elsewhere, the longer they weigh on
overall productivity growth. Given the aging of our populations, weshould make sure that those people of working age are at leastworking in the most productive way. Therefore, this negative side
effect of ultra-low interest rates should be taken seriously.

Open Economy – Key to Raising Productivity
JS: How do you see the role of innovation in

encouraging high productivity in the EU?

Kooths: Innovation is very popular in the political debate – people
say they want to make the EU the most innovative place to be – butinnovation does not come from government interventions, it comesfrom the players and entrepreneurs in the marketplace. To support
this innovation process, policy makers must keep markets open to
keep the competitive pressure as high as possible, which in turnstimulates new ideas, products, and processes. Unfortunately, theanswer to all these problems that we can currently see on the EU
policy level is rather that we want to become more protectionist.
They call it “economic sovereignty” and what they mean is to bringback supply chains within the EU borders. Giving up the high degreeof global division of labor would mean that we cut into alreadyexisting productivity. In order to give productivity growth a chance,
we should not become more protectionist but more open to the restof the world. This is where a substantial part of our overall wealthcomes from – the open market and the global division of labor. This
is not a new economic insight but is still true.
An extra concern that I have is that we have now started a periodwith very challenging climate policies. Given that the decarbonizationis already a huge task, we should make sure that we are as open as
possible for any technological way to achieve the emission goals; buthere again, we see a rather interventionist approach which tries topromote some technologies at the cost of others, and this brings therisk that the overall decarbonization project becomes much morecostly than it needs to be, because we are too interventionist andinstead of just setting the framework we intervene very specifically indecisions about technologies that should be taken by entrepreneurs
and not by bureaucrats.
JS: Turning to the labor market situation in the EU,

you have stressed the importance of open market
policy as well as promoting efficiency. There could besome concerns about the unemployment rate in
Greece – for example, due to the policies aiming toenhance efficiency with an aging population.

Kooths: I’m not concerned about rising unemployment; on thecontrary, the labor market will be quite differently shaped in the new
decade in the EU rather than in the most recent decade. Labor will
become more and more scarce, and therefore we need an increase inproductivity to at least mitigate some of the problems caused by the
aging process. We have never seen anything in any country that
could be described as technology-induced unemployment. First, theempirical results are clear; this has never been observed as amassive problem.
It can hit a particular branch, yes, but never the total economy andfor good reasons. Because innovation takes place, because labor isso scarce – so the scarcity of labor triggers innovation, and theperception in some parts of the public debate is that labor-saving
innovations might cause unemployment. I can reassure you thattechnology-induced unemployment will not be a major problem inthe coming years. We should rather think about how to becompetitive in the global labor market in terms of attracting net
immigration of well-educated people.
This is more or less the global labor market already, so we must
make the European economies competitive such that people
immigrate into the European countries on a net basis. We should nottake it for granted that the EU is such an attractive place to be, andthat all the talents of the world would want to go there; they will notwant to come here for the sake of helping us cope with our aging
problems and for financing our social security systems. If theycome, then they want to build their future here.
They might want to establish their own companies and be
productive, they will not come to help us with our legacy problems.
They want to see an attractive place for their personal future, or they
will go to the United Kingdom or parts of Asia or to the US and they
will start their lives there. Instead of being concerned about
technology stealing jobs we should focus on attracting people fromall over the world. Thus we must make the EU economies attractive
as a place to be and as a place to work and to do business.
Of course, the emphasis must be on attracting well-educated andhigh-skilled people rather than people who will need to be supportedby the social security systems. The need is to attract medium- andhigh-skilled people, not pure numbers of immigrants. If we opened
the border to everyone who wants to come here, many would ofcourse come but these are not the people who would be able to help
us economically.

Income Inequality Is Not Necessarily Highin the EU
JS: There would seem to be high income inequality inthe EU, which some critics say is causing increasing
political populism. Will income inequality continue torise after the pandemic?

Kooths: First, it is simply not the case that income inequality isparticularly high in the EU, actually the opposite is true compared to
the US or UK or China. The EU economies with their welfare statemodel are rather an example of economies where a lot of
redistribution is going on and overall inequality numbers are low. It
is often repeated in the news that inequality is increasing but this isjust not the case.
In a country like Germany, from the early 2000s onwards and till
today, income inequality is flat. There is no increase in inequality inincome flows. This is the wrong perception of the statistics, and if at
all there might be an issue with wealth inequality – but then we mustalso talk about the impact of monetary policy which of course
increases the wealth positions of those who have net wealthdramatically, whereas those who do not have any net wealth do notbenefit from these low interest rates.
We should be very cautious with the numbers, and a lot of people
are scandalizing the inequality as such, but many of those people do
not really work with the numbers or understand them well. There isan ongoing trend over decades in many European countries that the
average household size is shrinking. We have many more single
households than 40 or 50 years ago. In particular, single parents –from a purely statistical composition effect – are contributing to anincrease in inequality.
This is a structural factor that comes from individual decisions
that have been taken, and you can even go a step further and say that
50 years ago for a female it was economically unfeasible to leave her
Japan SPOTLIGHT • November / December 2021

21

husband and live alone with her children. Today, it is possible. You
could even interpret this as a side effect of economic growth thatpeople have more possibilities to make a free choice about how theywant to live. Statistically, it increases inequality numbers, but it does
not mean that the individual circumstances of living have decreased– on the contrary.
Take the inflow of about 1.5 million asylum seekers in 2015 and2016; these are people with typically very low incomes. Most ofthem do not have any income when they come here. This increasesof course the inequality measure. But it would be completely absurd
to assess that German society has become more unfair because
inequality numbers are increasing when, in fact, we are giving shelterto asylum seekers. The whole debate is highly politicized and if you
look into the root causes and what is really shaping the development
you would come to quite different results.
JS: Japan is also concerned about its aging

population, particularly over productivity. However,
we are also concerned about rising income inequality
due to the aging population. Is there a similar
concern in the EU?

Kooths: It is rather a redistribution conflict between the already
retired people against those who are still economically active, which
creates problems. We must adjust our pension system – whichmeans primarily we have to increase the pensionable age – this is
more or less a no-brainer.
We have to keep more people in employment, but what we see
from a couple of studies is that a society that is aging on average islosing productivity growth just because the age composition isdifferent. This is a problem that should be addressed by lifelong
learning and our education systems in general. We should also think
about what happens to people who have done a physicallychallenging job for a couple of years but who cannot work at the ageof 65 or 70 in their old occupation, but maybe we can find new
occupations for them. Making more flexibility possible is one way tocope with it, but the inequality problem from my personal view is not
the key problem but rather the inter-generational conflict around it.

Some Skepticism About Ameliorated EU-US
Relations

Biden is not a free-trader and is as protectionist as his predecessor.
One could even say that his predecessor was quite frank in what hewanted as a protectionist; he just increased tariffs. Whereas themuch more difficult problems in the debate on protectionism are thenon-tariff barriers to trade, and they have been gaining importanceover many years, the WTO is reporting this on a regular basis andyear by year the non-tariff barriers to trade are increasing.
There are more new barriers each year than old ones being
removed. I would rather warn that we might see an Atlantic coalitionof protectionists who try to cut links to the rest of the world by
imposing their standards on other regions. This is something thatcannot work. We have recently decided upon a supply chain law inGermany, and we will see something similar on the EU level coming
very soon which holds corporates responsible for human rights
violations in other countries, in their supply chains. This is atremendous barrier to trade and would rather lead to Westerncompanies withdrawing from countries where it is hard to control
whether suppliers play according to Western standards or not.
This will not improve the situation in these countries but make itworse, and we are also opening the door for all kinds of lobbying, forpeople who want to see competitors from other parts of the world
banned because they do not have the same standards in terms ofworking standards, social security, or environment protection as theWestern world. Why do we have these high standards? Because wehave already achieved a very high degree of wellbeing; therefore, we
can afford these high standards which are the flipside of our highproductivity and high per capita income.
Other parts of the world that are less developed just cannot afford
these standards, and it would be completely unfair to impose ourstandards on others. We could also criticize this from a politicalpoint of view, because respecting the sovereignty of lawmaking inother countries means we can trade with each other without any
approach that imposes our points of view on others.
I am rather skeptical that the new friendship between the US andEU will really make the world a more open place; I am rather
concerned about a coalition of protectionists – people who areachieving economic sovereignty, but which will at the end turn out tobe the same protectionist policy approach that we have seen manytimes in history. The names may change, the mercantilist attitudes
do not.

JS: You mentioned that openness would be key toachieving economic vitality between the US and theEU. Would the current EU-US relationship stimulate
growth of trade and investment in Europe andeventually enhance growth?

Kooths: Obviously the atmosphere is more relaxed now. It is easier
to communicate over the Atlantic and overall political relations have
improved. However, we must not overlook that US President Joe
22 Japan SPOTLIGHT • November / December 2021

Written with the cooperation of Joel Challender who is a translator, interpreter,
researcher and writer specializing in Japanese disaster preparedness.

COVER STORY • 2

R

Roundtable with Prof. Fukunari Kimura, Prof. Junko Shimizu & Kayo Matsumoto

oundtable Discussion on the White Paper on
International Economy & Trade 2021: Trade
Policy at an Historical Turning Point

By Japan SPOTLIGHT
A Roundtable on METI’s White Paper on International Economy & Trade 2021 was organized on Aug. 4,
2021. Kayo Matsumoto, the representative author and director of the Policy Planning and Research Officeat the Trade Policy Bureau of the Ministry of Economy, Trade and Industry (METI) at the time of its drafting,showcased the highlights of the White Paper and moderated the discussion following it. She is currently
working as counsellor to the Cabinet Secretariat in charge of infrastructure issues related to economic
cooperation.
Prof. Fukunari Kimura of Keio University and Prof. Junko Shimizu of Gakushuin University joined thediscussion. Prof. Kimura is a distinguished trade policy economist, a dedicated advocate for a multilateral
trading system based on free trade. With his expertise and interest in the Asian economy, he is also
working as chief economist for the Economic Research Institute for ASEAN and East Asia (ERIA), a
Jakarta-based Asian think tank.
Prof. Shimizu is also a distinguished economist with expertise in international finance and currency
systems, as she had more than 10 years’ working experience as an exchange dealer at international banks
before becoming an academic. Her interest is a common currency in Asia, such as an Asian Monetary Unit
(AMU). Both academics are very keen on policy-oriented issues and have been active in publishing theirviews.
(Online Roundtable on Aug. 4, 2021)
ParticipantsProf. Fukunari Kimura

Prof. Junko Shimizu

Introduction of the Highlights of METI’s
White Paper on International Economy &Trade in 2021
Matsumoto: In drafting this White Paper, we had in mind that wewere now at a time of big changes that require us to reconsider ourtrade policy. Early in 2020 when the White Paper for 2020 was being
drafted, METI officials at the Trade Policy Bureau began discussing
what the economy in a post-pandemic would look like and what
https://www.jef.or.jp/journal/

Kayo Matsumoto

policies would be needed in responding to the disruption of global
supply chains due to the pandemic. You can see the analysis of thepandemic’s economic impact on both the demand and supply side inlast year’s METI’s White Paper reflecting those discussions. This
analysis led to a policy of lowering the concentration of supply chainsin certain places or nations to reduce risk. Providing subsidies fordiversifying supply chains was one of the policies, including subsidies
to transfer production bases from China to other nations. The same
discussion continued in the second half of 2020. Regarding wider
Japan SPOTLIGHT • September / October 202111

trade policy, before the US presidential election last November, it was
hard for us to get a clear prospect of the future economy and policies
in the United States. But as we see from international leaders’meetings and their statements after President Joe Biden’s
administration was formed, we have begun to get a clearer idea of thepolicy environment.
The first thing to be noted as a key policy that affects trade is “theenhanced interest in common values in international economic
activities”. Increased interest in the global environment is the leading
issue. In Europe, for example, they have been engaged in what we callsustainable finance along with a large-scale action program topromote a green economy since around 2018. In my view, theirpolicies for reorienting financial flows towards sustainable economic
activities as defined by themselves could change the competitiveenvironment in their favor, with the alleged objective of achieving
green growth in a sustainable environment.
This growing interest in common values is not limited to Europe. In
the US as well, Securities and Exchange Commission (SEC)
consultations for potential new disclosure requirements related toclimate change were held recently. This is a further step after thereport of the Task Force on Climate-related Financial Disclosures,
established in 2015. The Biden administration is also strengthening
efforts to encourage businesses to respect human rights, anotherimportant issue of common values.
Another key change in the policy environment is the expanded roleof the government. The expansionary fiscal policy adopted during the
pandemic to compensate for the economic damage it has caused has
not been a mere remedy for suffering industries or people but afurther active policy to encourage green and digital growth.
The urgent need to strengthen efforts to protect economic security
is also crucial today as a key change in the policy environment.
Though it has been observed for several years, and in 2019 inparticular, it was argued as a sensitive issue mostly in the context of
the US-China conflict, but today it is considered to be a key issue inpromoting alliances, such as between the US and Europe or the US
and Japan, in order to protect national security.
These changes in the policy environment will affect businesses,with regard to both global common values and global supply chains.
We confirmed in this White Paper that Japanese business supply
chains in Asia, which have long been far too dependent upon China,
gradually started becoming more diversified around 2011 or 2012,
though little by little, with a slightly lower share in China in terms ofForeign Direct Investment (FDI) or the number of production sites aswell as imports of principal parts and components among Japan’s
12 Japan SPOTLIGHT • September / October 2021

major trading partners in Asia.
I believe that businesses are now increasingly taking account ofcommon values like the global environment or due diligence onhuman rights in their management, with pressure from capital
markets as well; and it is also noteworthy that digital technology will
be useful for businesses to meet these new requests and challenges
regarding the environment and human rights.
“Trustworthy global supply chains” could be constructed byrelevant trade policies that reflect these new values. We highlighted awide range of rule-making venues and accords where such trade
policies could be discussed and achieved, such as the WTO, a varietyof Economic Partnership Agreements (EPAs) such as the EU-JapanFTA or the Comprehensive and Progressive Agreement for TransPacific Partnership (CPTPP), the OECD and APEC. Among these, theOECD is utilized as a venue for discussions on frontier policies among
like-minded countries, while APEC can be a venue for more practical
discussions. In addition, the Supply Chain Resilience Initiative (SCRI)
launched by the Australia-India-Japan Economic Ministers’ Meeting in
April 2021 to create a virtuous cycle of enhancing supply chain
resilience and the Dialogue for Innovative and Sustainable Growth
initiated by the ASEAN-Japan Economic Ministers in August 2020 are
also relevant venues for discussing new issues. Our trade policy has
been these several years to utilize plural venues for discussions toestablish rules to achieve trade policy goals. We will continue using
these venues to achieve rule-making that reflects the new values intrade policy. I think even the rules among private businesses rather
than an official treaty would affect business behavior or capital flows
and eventually the business competition environment. If so, could
Japanese businesses create their own values by such rules that would
be accepted by the rest of Asia? This is a difficult question. We cannot
make it clear exactly what would be a unique value created by aJapanese business as a tangible concept, though the White Paper
introduced some specific examples of Japanese firms’ efforts tocreate values for local communities and for themselves as private
corporations.
I would like to end my introduction here and move on to thediscussion session. On the issue of supply chains, I would like to ask
Prof. Kimura for his views on supply chain resilience or connectivity
with regard to ASEAN, and in particular could he please give histhoughts on what the notion of “service link” means in this context?

To Achieve Resilient Supply Chains
Kimura: How excessively Japanese businesses depend upon Chineseindustries in their supply chains certainly needs to be examined, but it
is also true that China is still important for Japanese businesses. So I
believe that it is not necessary to even ask Japanese companies toleave China. Meanwhile, however, it is important for Japanesebusinesses to diversify their overseas production sites. In diversifying
them, they will find a clear distinction between nations where they
could possibly have an elaborate production network based on robust
connectivity and others where they could not. I believe that whatmatters most is to expand the working environment to enablebusinesses to develop elaborate production networks in as many
countries or regions as possible. Asian nations like Cambodia, Laos,
Myanmar or India do not yet have working environments toaccommodate such production networks. This is certainly due tothose nations’ investment environment but also to the lack of robust
connectivity from hardware to software. For example, in operations totransport parts and components in a supply chain, what matters is
not only the pecuniary cost but also time efficiency and reliability oflogistics. Unless those are guaranteed, production networks cannot
be expanded to such nations. Assuming that the manufacturingindustry is still a key to growth among these nations, there will be somany things that need to be improved in them.
In thinking about Japan’s economic cooperation on infrastructure
which could improve the environment of production networks, its
strength has been well noted. From the project in Laem Chabang Portand the Eastern Seaboard in Thailand to the infrastructure building
around Hanoi in Vietnam, Japan has carried out systematiccooperation on infrastructure. The strength of this approach is seen in
economic infrastructures such as electricity supply. Whether or not
China provides a wide range of economic support to ASEAN nations,Japan has its own strengths in infrastructure building, not least in avariety of urban amenity-related infrastructures such as water andsewage plants, which Asian countries also need.
Apart from manufacturing production networks, how it would bepossible to take advantage of disruptive innovation is also importantfor ASEAN countries. In order to achieve this, there will be a need forhighly qualified experts or for people returning from studying abroad
to start a variety of innovative businesses. Urban amenities are a key
area for such innovation and ASEAN cities are competing for such
experts. They are competing with each other in urban amenities, justas in the US where cities compete in an attempt to achieve a virtuous
cycle of qualified experts and more innovation leading to improved
amenities.
ASEAN nations are currently facing difficulty in proceeding withinternational division of labor beyond the manufacturing industry,

such as in services, without urban amenity-related infrastructures. So
Japan could increase its contribution to the development of ASEAN
nations by providing high-quality urban amenity-related
infrastructures.
I found the chapter on the resilience of supply chains in this White
Paper very useful and enlightening. I believe supply chain
management itself may as well be left to private businesses and what
the government needs to do first is to increase the alternatives forprivate businesses to enhance their resilience. I think it is very
important for the government to improve the investment environment
and the connectivity of supply chains among ASEAN nations andSouth Asian nations.
Matsumoto: A smart city, another urban amenity-related
infrastructure, is one of the focused infrastructures in the
Infrastructure System Export Strategy and is said to be difficult tomonetize from an exporting side’s perspective. I regarded it asproviding sustainability values. But as you said, we would need totake into account the needs of the host nation in terms of attracting
talented people.
I would like to ask Prof. Shimizu about selection of the currency for
procurements of parts and components in supply chains. In ourWhite Paper, we referred to a survey on diversification of supply
sources in supply chains conducted by the Japan Bank forInternational Cooperation and the Development Bank of Japan. The
results were that a large percentage of the companies surveyed
responded affirmatively to diversification of supply sources
immediately after the pandemic. This was probably, as we had
expected in advance, because it would be much easier to change
supply sources rather than changing production sites. Apart from theelectric and electronic appliances industry where nearly all
settlements are done in dollars, in the case of diversifying supply
sources, when Japanese firms procure similar parts and components
from among plural nations, what would be the implications for theselection of currencies used for settlements by businesses?

Selection of Currencies in Diversifying
Supply Sources
Shimizu: Even before the pandemic, with intensified US-China trade
friction as well as natural disasters, Japanese manufacturing
companies with production bases in Asia were thinking about further
diversification of production sites in terms of their business continuity
plans. The pandemic accelerated this trend. They are now seriously
Japan SPOTLIGHT • September / October 202113

thinking about moving some of their production or procurement sites
from China to Southeast Asia, although maintaining business in
China.
On the question of selection of currencies for settlements, thanks
to the internationalization of the Chinese yuan, transactions of Asiancurrencies including the yuan are much more easily done and thecosts are much lower. Thus we have seen the percentage of yuanbased transactions in Japan-China trade increasing recently. The local
subsidiaries in China and Thailand are freed from foreign exchangerisks by being able to use their local currencies for their cross-bordertransactions. On the other hand, businesses have to move to lessdeveloped nations such as Vietnam, Indonesia or Cambodia and there
they have no choice but to use the US dollar for international trade.
However, these countries have regulations to enforce all domestictransactions to use the local currency. In this case, Japanesesubsidiaries have to manage transactions between the dollar and the
local currency, and therefore diversification of production bases toless-developed nations would make it more difficult to manage
currency transaction risks.
Another issue is trade finance. In less-developed countries
businesses would often have to use a more expensive method, suchas a Letter of Credit (L/C), and costs would be high. We would need asolution to this.
I am very impressed that this White Paper mentions this issue, inparticular the “Trade Waltz”, a trade-related information connecting
platform using blockchain technology. This platform would play a keyrole in Japanese companies’ attempts to diversify supply networks in
Asia and prepare to replace a production site in any country exposed
to a certain risk with another site somewhere else, because theywould need to be supported comprehensively in terms of currency,
customs clearance systems and trade finance. Recent innovations ofdigital technology will support further diversification of Japanesecompanies. This is as important as the question of urban amenities
that Prof. Kimura mentioned.
On possible future development in this regard, the Nippon
Automated Cargo and Port Consolidated System (NACCS), a
Japanese online customs clearance system for imported and exported
cargo now introduced in Vietnam and Myanmar, would be expanded
to other countries and certificates of origin would be issued moreeasily than ever by taking advantage of NACCS. Eventually, theAuthorized Economic Operator, a system adopted by the World
Customs Organization allowing businesses with the capacity forsecurity management of cargo and law observance to modify andsimplify customs clearance, may also be expanded. Thus, with the
14 Japan SPOTLIGHT • September / October 2021

“Trade Waltz” service, we would be able to achieve digitalized
customs clearance. In the White Paper, I think this would have been
more convincing with a clear explanation of why the “Trade Waltz”
and NACCS will be needed in the expansion of supply chains. It isclear that there will be enormous differences in cost and the timeneeded for procedures between a case where trade finance is done
simply through an account by an online network like the Society for
Worldwide Interbank Financial Telecommunication (SWIFT) and acase where the finance has to be done with an L/C because thebusiness partner is not to be fully trusted. This is a vital issue inbuilding up supply chains in the new less-developed trading partners.

Future Outlook for the Global Economy
Matsumoto: I would like to further discuss a little beyond the scopeof the White Paper.
Firstly, could you both please tell me your views on the future
outlook for the global economy?
International cooperation is now under progress to reduce theeconomic gaps between the developed nations where more people
have been vaccinated against Covid-19 and the developing nations
where fewer people have, as vaccination is at this moment the onlymeans of stopping the spread of the Delta variant and economic
recovery thus depends upon the progress of vaccination. What do
you think will be the key issues in reviving the global economy while
US or European monetary policy gradually returns to normal?
The second question is about the possibility of introducing private
finance for economic cooperation on infrastructure projects. As forfinancing for infrastructure in general, 90% is from private financeand 10% from public finance. Do you think there is more room for
private financing to be introduced in infrastructure projects under
economic cooperation?
Kimura: It is truly amazing to see that national governments, inparticular those in developed nations but also emerging economies
and developing ones as well, have been taking unprecedentedly largescale macroeconomic mitigation policies. In the first half of last year,
we worried about a possible global depression and extremely strong
negative shock on the demand side of the global economy with adamaged financial sector and the collapse of asset markets. But thenegative shock was truly small.
Looking at trade data, though we see a negative demand shock on
the whole economy continuing, all nations’ GDP growth bottomed out
in May or June in 2020 and is now coming back to normal. This is a

truly phenomenal and revolutionary performance achieved bymacroeconomic policy.
Vaccination is a key to the restoration of the economy and there will
be a big time lag in the recovery between nations making good
progress in vaccinations and nations failing to do so, as the directionof economic recovery will depend upon the virus variants. It should
also be noted that the fiscal situation among Southeast Asian nations
including Indonesia is not damaged yet. But we will need to watch
carefully the macro balance of emerging economies and developing
economies as developed nations start raising interest rates inaccordance with their own economic recovery.
Over the mid-term, there will be a divide in the economic recovery
among sectors in ASEAN. Some are steadily recovering but some arenot. In general, the sector of goods trade is steadily getting better, inparticular goods that had a positive demand shock from the pandemic
such as those linked with remote working, as ASEAN nations’ exports
are very competitive and their exports of goods to Europe and the US
have returned to normal very quickly. But there are some sectors
which cannot recover well, such as transportation, tourism and faceto-face services, and they will still have much difficulty recovering.
Such sectoral division will be seen as a key characteristic of the future
recovery process. Whether a sector or business can adjust well to thedigital economy or not could make a clear difference in its
performance as well.
According to an Internet questionnaire survey by ERIA, more than
2,000 companies in ASEAN responded by Internet, and thosecompanies with high IT literacy have a record of good businessperformance, as shown in that more than half of them saw a positive
increase in sales even last year. This means that companies using theInternet are exploring for business opportunities everywhere and thus
show a good performance. Nonetheless, there is still uncertainty
about their recovery due to political instability. We are not sure yet if
we can truly draw a rosy picture of recovery for these nations.
On the question of private finance for economic cooperation in
infrastructure, ASEAN nations have tried to introduce it these last 10
years, in particular under the scheme of Public-Private Partnerships.
But their optimism about it has now gone after seeing its failures, likethe one by India which was very positive about it and announced it
was introducing private finance for two-thirds of infrastructure
investment. Because of this, they have been proceeding little by little
with caution in introducing private finance.
It is certain that the easiness of private finance introduction differs
by sector. For example, in large-scale power plants, private financeintroduction is now confirmed, but it would be difficult to introduce itin sectors like transportation, urban infrastructure or public services.
We need to think about how to finance projects that do not pay welland make up for their low profitability. We cannot recommend theintroduction of private finance without consolidated governance on
private and public finance in projects in developing and emerging
economies. It is too risky to promote such projects by collaboration
between the public and private sector without fixed rules in thosenations. We will need to promote it as carefully as possible, step by
step.
Shimizu: Japan seems to have failed to secure imports of vaccines or
Personal Protective Equipment (PPE) and other essential goods at the
beginning of the pandemic. I think the government should have taken
greater initiative in this rather than leaving it all to private business.
We should examine policy measures in this regard. Though Japanconcludes bilateral or regional and multilateral EPAs, all nations
naturally take actions in favor of their own country in emergencies likethis pandemic. I do not think there is any rule on cooperating in suchactions in any of the EPAs. We should also examine how helpful EPAs
could be in responding to such unexpected emergencies.
On the question of the global macroeconomy affected by the
pandemic, the damage was much less than we had thought, as Prof.
Kimura mentioned. Though there is a significant divide in damage
among sectors, the economy as a whole is coming back to a normal
track. We will need policies to support the seriously damaged sectors
and businesses after finding out how best to help them from now on.
On the question of the introduction of private finance into economic
cooperation projects in infrastructure, I think we need to have ascheme in which Japanese overseas subsidiaries with excess liquidity
could invest in those projects. Urban amenity-related infrastructures
will be very important in ASEAN countries. In Thailand or Indonesia,
which have heavy traffic jams and high temperatures, frozen storageof vaccines is difficult and thus vaccinations are not progressing very
well in those countries. Economic cooperation in building up urban
infrastructures for those nations would have benefits not only for
those nations but also for the Japanese working for the subsidiaries
in the local economy. It is often said that some Japanese production
subsidiaries have excess liquidity after remittance of patent royalties
or dividends to their headquarters and it does seem to be difficult forthem to find a good and safe destination for investment. With ascheme for those subsidiaries to invest their money in economic
cooperation projects in urban infrastructures, there would be a very
positive benefit in the long run for those companies as well.

Japan SPOTLIGHT • September / October 2021

15

Matsumoto: Though we mentioned the advanced aspects ofdigitalization in Asia in the White Paper, such as Grab or Gojek, taxi
dispatch applications in Singapore and Indonesia, I find now that we
did not think well enough about the sectors of the Asian economy that
do not enjoy the benefits of digital technology. There must still be agreat need for economic cooperation or private business to help in
those sectors.
Kimura: There seems to still be a gap in capacity for using basic IT in
Southeast Asia. For example, there are some who can take advantageof e-commerce and some who cannot. There are also some who caneasily do work connected with the Internet and some who cannot. So
there remain many gaps in capacity for using simple technology inSoutheast Asia. What matters is not to slow down the introduction oftechnology creating gaps in the economy but to encourage it in awide range of businesses.
Meanwhile, there are also many areas with more progress inutilization of digital technology than in Japan, such as the introductionof digital ID for promoting the availability of a variety of public
services. In this light, it would be possible for their digital economies
to make great leaps after deployment of basic IT in these nations.
Matsumoto: How can the government and private sector in thesenations reduce such gaps in the capacity for using digital technology?
Kimura: We will need to wait and see how governments could get
involved in it. In the case of developed nations, with government
regulations, any digital infrastructure such as the Internet or
broadband would be accommodated with private funding. But inemerging or developing economies, how quickly it could be achieved
needs to be examined. Anyway, a tremendous amount of government
expenditure on highway or port construction would not be necessary.
So it is important for the governments not to hesitate to spend moneyon digital infrastructure building.
On the question that Prof. Shimizu mentioned about whether EPAs
should be equipped with rules on a cooperation framework forproviding essential goods less restrictively among the member
nations or not, there were certainly many countries that restricted
exports of PPE, medical goods, food or other essential goods at the
beginning of the pandemic. This was a big issue. Temporary export
restrictions could be GATT-consistent. This issue, however, wasfortunately fixed at a rather early stage, within several months after
the pandemic started. On the other hand, I think India’s policy to start
imposing tariffs, contrary to trade liberalization, is clearly violating
16 Japan SPOTLIGHT • September / October 2021

GATT articles and should be properly addressed. EPAs would play arole in stopping such an abusive industrial policy.
Matsumoto: We would need to use a dialogue venue and internationalrules as in the SCRI or EPAs to address issues like the “Make inIndia” initiative. With a bigger role by government in trade policies, I
guess there may be an increasing number of policies combiningsome that promote national interests which are not protectionist withsome that are protectionist. We had a warning against it in the White
Paper.
On the issue of large retained earnings by Japanese overseas
subsidiaries that Prof. Shimizu mentioned, I thought they were aiming
at good investment targets with those earnings in overseas markets
that are growing more rapidly than the Japanese market, wherefinding financing would be easier. Would there not be many
investment opportunities for them?
Shimizu: There are certainly some companies holding a good amountof retained earnings in Singapore and such subsidiaries are
increasing. They would be ready to buy bonds with government
guarantees for big infrastructure projects, if this investment would beto their benefit and raise Asian growth. In recent years, Japanese
insurance companies have also expanded overseas business into
Asia. For them, the expansion of the local currency bond market isessential.
In addition, firms’ risk management covers not only foreignexchange risk but also risks of natural disasters or accidents or law
suits, and they aim to be insured for those risks at minimum cost. For
this, they recently started to establish their own insurance companies
covering all the risks faced by their affiliated companies instead of
paying fees to external insurance companies to save costs. It is
so-called “Captive Insurance”, and this has been the trend in Japan
since 2019. This is another way to encourage them to use theirretained earnings and an important business strategy for aheadquarters to protect its local subsidiaries. It may not work if
anything serious worldwide happens, but one small subsidiarycompany’s risk can be covered by the company’s headquarters.
Furthermore, in such cases, they set up a captive independent agent
from a headquarters in charge of covering all the subsidiaries’
business risks. This captive agent can get all the insurance fees fromthe affiliates and thus this is much more cost saving, rather thanasking external insurance companies to insure against those risks.
How Japanese overseas subsidiaries use their retained earnings could
be an interesting issue to be examined in next year’s White Paper.

What Is Expected from METI’s White Paper
in 2022?
Matsumoto: In addition to Prof. Shimizu’s comment on what is
expected from our White Paper in 2022, is there anything else to be
expected to be picked up as topics for next year’s White Paper?
Kimura: In the light of trade policy, the biggest issue in this White
Paper was how to conciliate trade liberalization with economic
security or environmental and human rights issues. I think the logicof this conciliation between the two different groups of policy values
could be further developed in the next White Paper. Upgrading thefree trade system is mentioned in this White Paper and the question
how it is to be done must be explored, but it would be a tremendous
task. In my view, as the logic of international trade policy is alreadyestablished as one that authorizes a rules-based trade regime basedon the concept of economic efficiency or legal stability, it should not
be mixed up with any other value judgement. In other words, it
should not be assumed that trade policy will assess economic
security or due diligence on human rights. This is beyond the scopeof trade policy thinking. We trade policy people should reconcile thevalues of economic efficiency with non-economic values. The thought
behind GATT Article 20 and 21 is that trade policy is not in a position
to judge whether a specific security standard or environmental
standard is appropriate or not. Instead, a trade policy must be taken
to minimize the negative impact on trade of those policies that pursue
the goal of a green environment or human rights or economic
security. I think this perspective is very important. The mixing-up of
two different values like economic security and economic efficiency
would lead to the collapse of trade rules, as any trade policy could
reflect security concerns. We need to make a clear distinction
between the responsible domain for trade policy and others, and trade
policy should pursue rules of trade and investment within a limited
scope of responsibility. Without it, it will be difficult to point out evendisguised protectionism. As a result, uncertainty surrounding trade
regimes will rise and all kinds of unexpected policy risks could
emerge, which would be the worst for private businesses.
I know we will need to listen to whatever any superpower is saying.
But I believe that trade policies need to observe their own logic.
Economic security or environment policies or human rights policies
have values to be respected by other policies than trade policies.
Trade policy people need to present their views on this as clearly as
possible, considering how non-trade policy values differ from trade
policy values. For example, if any superpower says we need to restrictproduction of automobiles for security reasons, trade policy people
will need to oppose it based on their logic. I think it is still important
for trade policy people to say what economics says, such as free
trade almost always achieves the optimal resource allocation and thehighest economic efficiency.
Shimizu: I would like METI’s White Paper next year to pick up theissue of international taxation such as transfer pricing taxation, one of
the challenges for manufacturing businesses operating overseas. In
particular, after the global financial crisis in 2008, the decline in someJapanese companies’ headquarters business was compensated for by
their overseas subsidiaries with more earnings, and thus the taxation
system would be very important for a variety of production bases inAsia.
In addition to international comparisons of capital regulations by
host countries in the context of emphasizing the need to facilitate abusiness environment in favor of Japanese local subsidiaries’
operations shown in this White Paper, it would be better in next year’s
White Paper to at least mention the importance of each host country’s
financial regulations for the Japanese subsidiaries’ operations.
Lastly, on the question of “what would be the values that Japanesebusinesses can claim as specific to themselves” that Ms. Matsumoto
mentioned, I have a couple of things to be noted. One is the highquality of goods and services, and the other is “continuous aftercare”. For example, having helped set up the stock market in
Myanmar, Japan had been taking care of the market until companies
got listed and market transactions started.
When bidding for large-scale infrastructure investment projects,
Japanese firms could often lose out in terms of price, but with a highquality of the infrastructure and continuous after-care andmanagement support, which are the main sales points of Japanesebusiness, they would be highly appreciated by host nations as aresult. So, in such a case, the government should support it by somekind of subsidies in order to win the project first. And thesesuccessful experiences will further enhance the credibility of Japan’s
infrastructure investment.

Written by Naoyuki Haraoka, editor-in-chief of Japan SPOTLIGHT, with theassistance of TapeRewrite Corporation.

Japan SPOTLIGHT • September / October 2021

17

COVER STORY • 1

Interview with Adam Tooze, Kathryn & Shelby Cullom Davis Professor of History, Department ofHistory, Columbia UniversityA

n Historian’s Views on
Present Geopolitics &Geoeconomics

By Japan SPOTLIGHT
The US-China “cold war” has changed the geopolitical and geoeconomic landscape completely. We arein the midst of regime conflict between democracy and authoritarianism. How are we going to comethrough this challenge and what is the solution? We will need not only to analyze the current situation but
also analyze it from the long-term perspective, with an eye on how we have reached this current status
and what future we will most likely have. An historian’s views would be valuable in this regard. Prof. Adam
Tooze is a distinguished British expert on economic history, the author of such books as Crashed – How a
Decade of Financial Crises Changed the World (2018) and Shutdown – How Covid Shook the World
Economy (2021), both of which relate how capitalism is undergoing a paradigm shift. Japan SPOTLIGHT
held the following interview with him.
(Interviewed on Oct. 6, 2021)

Merits of Being an Historian
JS: You’ve written some very

interesting books recently, one about
the financial crisis and one about theCovid crisis, both of which will havelong-term consequences on theeconomy, politics, and society.
Could you explain the merits ofbeing a historian in analyzing thesesituations?

much wisdom and knowledge of patterns, butrather an acute awareness of previous
moments of change, of disorientation, of
struggle to cope. Also, a way of writing about
economics, for instance, which is more alert todiscontinuity, to breaks, to qualitative change,
to a reconfiguration of basic relationships. Thatis the way I think a historian can be helpful inthis moment.
JS: It’s certainly true that economists

appear to be too short-term oriented,

Tooze: I want to be modest in answering thatin particular neoclassicaleconomists, focusing only perhaps
question, because I think the conventional viewon the short-term aspects ofis that the advantage of the historian is wisdom,Prof. Adam Tooze
economic incidents.
deep knowledge of human experience overhundreds, if not thousands, of years. There is a
Tooze: Yes, I think short-term on the one hand, and also what always
role for that, and it is the classic role of historians, but (a) it’s not mystrikes me is the sort of obliviousness. For example, there is thispersonal approach to history, and (b) I would like to question thehuge discussion about interest rates – why are interest rates so low
assumption on which that is based – namely the assumption of– and they will say, “They’ve been falling dramatically since 1980,
continuity, a broad, basic continuity in structural logics of different
and look at my graph, it shows interest rates falling since 1980.” But
types: economic, political, geopolitical, cultural. I am not convinced
they never pose themselves the question of why they were so high inthat the current moment can safely be assumed to exhibit those1980. If you just went back to 1967 or 1966, let alone if you wentcontinuities. This isn’t to say that I don’t think there are deeply
back 50 years, you would see something totally different. Interests
entrenched patterns of human culture or anthropology. But if you arerates surged in the late 1970s to a peak in the early 1980s. It isinterested in the sorts of things I’m principally interested in, whichhardly surprising that they have been on a downswing ever since.
are global finance, the global economy, huge shifts in the global
Everything they see is through these colored glasses, and when you
balance of power, then the world that we are overwhelmingly
take them off, all of a sudden the world looks very different. The
confronting is one of absolutely radical change, unprecedented
timeframes they operate in are short and unreflected, almost achange. To me, the role of the historian in that situation is not so
https://www.jef.or.jp/journal/

Japan SPOTLIGHT • January / February 20225

matter of habit or convenience. You see this in bank analysis all thetime, “Our data set goes back to 1990”, or it could just as well be
2000. There’s no justification, no framing of the epoch.

No More Neoliberal Capitalism?
JS: You’ve analyzed the 2008 financial crisis in yourbook Crashed and you wrote the book Shutdown
about the pandemic crisis. In both books, myimpression is that you seem to be saying we are nolonger living in so-called neoliberal capitalism. Is thatright?

Tooze: I think it’s more complicated than that. For sure, the selfconfidence of economic doctrine that said, “We know the future, andit belongs to markets and independent central banks, andshareholder value”, has been quite profoundly shaken. But if you
look at what economic policy even in those moments of selfconfidence actually consisted of, it was always in fact a mixture ofdoctrine, rules, orthodoxy on the one hand, and total pragmatism on
the other. In the end, I think what may be most upsetting toneoliberalism, the way in which I think we now realize we may bemoving into some genuinely new epoch, is the balance of power
between the West and China. It was really an American set of ideasof how to run the world, and China’s rise fundamentally challenges
that. You can see the bewilderment in the United States right now,
because China’s rise grows out of the success of the formula ofglobalization. To that extent I think that the neoliberal model has
been profoundly shaken, but I think by geopolitics as much as byanything else.

JS: This pandemic is exacerbating inequality, whichmeans that we might see another big rise in populism
after the pandemic. Do you see this leading togeopolitical instability?

Tooze: There certainly are huge inequality effects from the Covid
shock. In the places where the struggle over populism is mostintense – Italy, the UK, and the US – the relationship between Covidinduced and rising populism is pretty indirect. If there is a surge of
support for Trump in 2024 it won’t be because of Covid-induced
inequality, it will be because of the mobilization of the right wing
against the Democrats. In the UK, the economic consequences of
Covid and Brexit are very serious and the outcome is very uncertain,
and it’s not clear how far the Tories or the Brexit Party (now called
the Reform Party) will benefit. In Italy, the Fratelli d’Italia are gaining
votes at the expense of the other populist party, the Lega, and theFratelli are benefitting not because of inequality, but because they are
the only opposition to a cross-party government led by the central
banker Mario Draghi. This isn’t to say that I don’t take populism
seriously, but I think it is largely the effect of the functioning ofpolitics rather than a direct link between the Covid-crisis inequality
and populism.
JS: You seem to be saying that geopolitics, or perhaps

politics, will be a determining factor in thefunctioning of the economy. The economy used torule over politics, but now politics seems to be theruler.

Tooze: This is the inversion. I would agree that that is a break, yes.

Driving Force for Political Change

Large Government Is Now More Common

JS: The emergence of China will be an important

JS: On a slightly different subject, what do you thinkTooze: I think that’s valid up to a point. The problem is, as we’veseen with the administration of Donald Trump and with theConservative government in the UK, there may be a populist revolt
provoked by the resentment of white working-class people,
especially men, against the changed circumstances of their world,
but the people that they more often than not hoist into power thenpursue policies which are entirely aligned with the interests of atleast some group of the most privileged in society. I agree with youthat huge inequality is producing political upheaval, but it’s notproducing a concrete, specific alternative. It’s producing dysfunctionin the US on a large scale. And questions of race and gender are atleast as important as actual deprivation and actual inequality.

Tooze: In the aftermath of the financial crisis, the fundamental
problem for the Western economies that were worst affected – theEuropeans and the US – was the fragility of their financial systems,with a long stagnation effect. On top of that, from 2010 onward, therich countries refused to engage in a proactive, stimulative fiscal
policy, instead relying entirely on monetary policy. It’s too early tomake a final judgement by any means about what the long-term
effects of Covid are going to be. It’s too early to say for sure, but one
thing we don’t have to deal with is a crippled financial system. We
have seen very adventurous fiscal policy in 2020 and 2021, notmonetary policy acting alone but fiscal policy acting as well. The
central question is whether or not that fiscal support will continue. If
it’s coupled with an energy transition, a green growth agenda, with ahuge shift from fossil fuels to renewable energy, it could be theformula for relatively rapid green growth.

factor driving a sort of paradigm shift in Western
capitalism, but there could be other things, forexample, rising populism. Part of the background ofrising populism in the US and the United Kingdom is
expanding income inequality, which seems to beanother driving force.

6 Japan SPOTLIGHT • January / February 2022

are the differences between the consequences of thefinancial crisis and the consequences of thepandemic?

JS: It may be premature at this point, but most

governments appear to be very eager to spend large
amounts of money. What do you see as the positive
and negative elements of this large government
intervention going forward?

Tooze: The question is always the tradeoff. In economics, you always
have to ask what the alternative is. Yes, there may be somedisadvantages. If you do quantitative easing on the scale of the Bankof Japan, the bond market ceases to function in a normal way, andsome people will complain about that. But the question you have to
ask yourself is what is the tradeoff, and the lesson we learned from2008 was that premature restriction of government spending andfiscal tightening is a recipe for much slower recovery. I think the IMF
has adopted a quite sensible position by saying that it’s the quality ofspending that matters. The effect will depend not on quantitativedecisions of too much or too little, but on quality – did we get it
right?

Social Cohesion as a Solution to Political
Turmoil?
JS: That’s an interesting point. One concern about

excessive government intervention is that it mightlead to inefficiency, and that politics will alsointervene, leading to more volatility, with negative
consequences for society and the social economy.
Some people say we should pursue social cohesionin a more productive way. What do you think aboutsocial cohesion and how to achieve it? Will social
cohesion be a determining factor in stabilizing
politics?

Tooze: This is a very fundamental question, and I like the way you
put it by starting with politics and then going to social cohesion. You
are right in that we are entering an age in which politics in various
forms will matter a lot for the economy. The temptation then is to saythat you have to have good politics, and the question becomes how
do you get good politics, and how you get good politics ultimately
has to come down to society and the rules through which society isorganized. I grew up as a migrant in West Germany, and one of thethings that has made me happiest in the last week or 10 days was tolearn that 80 members just elected to the Bundestag have a migrantbackground of some kind – a mother or a father who is not German,or themselves a migrant. That is another image of social cohesion:
inclusion, incorporation, and dialogue.
That is a very constructive model, and it has certain preconditions.
Germany, for instance, does not have a media sphere as toxic as in
the US. It has the Internet of course, but for television it has a publicbroadcasting system with a balance of political interests and its
political parties are publicly funded. Running the election costs 100
million euros. In America, you can’t get elected to a state
governorship for $100 million, but you can run the entire German

election for 100 million euros. This shows that there are ways inwhich you can ensure that the relationship between society andpolitics is productive, open, complex, and future-oriented. Rather
than cohesion, perhaps one might say resilience, creativity,
dynamism: we need those things too.
I would think of cohesion not as an army with all of the soldiers
standing in a row, but perhaps like a soccer team. All the players
have different roles but cooperate with each other. They all wear thesame uniform, but they form a dynamic, moving but cohesive group.
That’s the kind of cohesion we need, as a dynamic, mutually
supportive network. If, instead, you have a situation of polarization
as we have in the US, it’s clearly disastrous. So yes, cohesion, but inan imaginative, modern way.
JS: Do you see community playing a role in this kindof cohesion, resilience, and dynamism?

Tooze: It can, but there are dangers in this kind of thinking. In thehistory of Western thought, community and society are often
counterposed. If you go back to the German sociologists of the late
19th century, community is thought of as warmer, traditional, richer,thicker, and society is thought of as alienated, individualistic,
modern. To that extent, I think community is an unhelpful concept to
us in the present. We need a new conception of community. If bycommunity we mean relationships which have an element of theface-to-face, an element of personal involvement to a particularlocation, then I think community is clearly desirable. If there is going
to be community it has to be in a sense that is open, and celebrates
its capacity to incorporate and add new members, and to allow
people to move between communities.
JS: Another question about cohesion. We are seeing

growing interest in social common values like theglobal environment, human rights, human well-being.
Will this be helpful in achieving social cohesion andintegration?

Tooze: Yes, let’s think about this concretely. Right now the greatchallenge is global vaccination. There are well-worked out plans for
how we could vaccinate all 7.8 billion people on the planet. But
unfortunately we have so far vaccinated just about half. We’ve
mapped the problem, there are brave doctors and nurses from allover the world working in remote places mapping out what it would
take to provide every human being with a vaccine, and it doesn’t costa crazy amount of money – it would cost $50 billion to $100 billion.
It would make us all much safer, and my fantasy would be that wepick one or two vaccines and do it every year. Then we could say thatas people, we were unified by at least that thing. The next pandemic
that comes will be more infectious and more dangerous, and if we do
not have the system in place ahead of time, we may not be able toimprovise it. This isn’t an act of altruism, it’s an act of enlightened
self-interest. But, unfortunately, we are a long way from realizing it.

Japan SPOTLIGHT • January / February 20227

Difference Between the Old Cold War & the
New Cold War

Tooze: The most significant difference is that China is the No. 2
economy in the world, with the most growth potential, and has been
responsible for far more economic growth over recent decades thanthe US has, and we’ve never been in a situation like this before. You
can see almost daily the tension between the geopolitical, thepolitical, the human rights-based critique of China on the one hand,
and the investment logic of big business and capital on the other.
You can see that being played out all over the world, literally in dayby-day conversations in public about the choices that are implied,
and there is no equivalent of that in the Cold War with the Soviet
Union, not even close. The scale of Japan’s investment in China isabsolutely huge, and that’s completely unlike Japan’s position with
the Soviet Union during the Cold War.

profoundly hostile to that vision. I think a move toward a world of
total uncoupling and a new cold war is more likely than integration,
but I also think that will be incomplete. My diagnosis of the current
situation is a kind of pluralism, a kind of disaggregation, and the way
in which the tensions are resolved, in the West in particular, is byincoherence – structurally determined, necessary incoherence,
double standards, different rules. Xi Jinping’s project is very much toconstruct China into a coherent power system, in which politics,
society, culture, and the economy align in powerful ways. I don’t
think any Western states have the social norms, the political culture,
the organization of interests, or the means of coercion that would
allow us to match or answer the Chinese.
Instead, what I see happening is us being sucked into a series ofvery asymmetric relationships, where certain domains and systems
are connected and other bits disconnected, certain systems areconnected with China and not with things at home. That’s quite
unstable, and worrying. If you take it that democracy is not just a
matter of voting, or the rule of law or protection of rights, butsomething about sovereignty, the ability to decide, to act collectively,
I don’t think it is at all obvious that the West retains a lot of that kindof capacity.

JS: Does that mean that a US-China decoupling will be

JS: Does that mean that international communication

JS: Turning to geopolitics, what do you think will be

the most significant difference between the old Cold
War and the new cold war between the US andChina?

almost impossible?

Tooze: I don’t know if that’s impossible, but the stakes are very highand the costs would be significant to both sides. If they were to do it,it would constitute a break in the historical vision of ourdevelopment, which is important for things like organizing long-term
investment, for instance. There’s no horizon then, and what would be
the prospect for future development? I don’t think it’s impossible,
and there are very powerful forces in the US which are pushing for
the uncoupling of particular bits. I think the question we have to ask
ourselves is not whether complete uncoupling is possible, butwhether partial uncoupling is, which is what they are attempting. And
it is the Americans attempting it, it isn’t the Chinese.

Resolving the Conflict Between Democratic &Authoritarian Regimes
JS: We are currently seeing increasing confrontation

between democratic regimes and authoritarianregimes with regard to vaccine distribution. At thesame time, Western capitalism is moving into a newage, in which neoliberalism is less significant. For
our last question, as a historian what do you think
about the hypothesis that democratic regimes andauthoritarian regimes, or capitalist regimes and noncapitalist regimes, could converge into one, morecohesive, system?

Tooze: It’s difficult to see the emergence of a more cohesive system,
because the entrenched interests of the US power operators are
8 Japan SPOTLIGHT • January / February 2022

and dialogue among those different systems will bemuch more important than ever?

Tooze: That is for certain, but the question is what form does thatconversation take, and is it a genuine conversation or is it just simply
a kind of dialogue of the deaf where no one can really hear eachother.

Rule-Making Efforts for a More Cohesive
Global Regime
JS: So if the WTO is not functioning well, would rule-making be done through formats like the TPP or theOECD?

Tooze: Yes, exactly. I think that would be the most optimistic
outlook. Of course, the rules skeptics come into play and say that
China will never abide by rules. I think we should not give up on thatso easily. It’s not obvious that China totally ignores rules. They may
not abide by certain rules in the way that we would want, but thencertain of those rules were designed in a way that China was nevergoing to abide by, so we should have been realistic about it. Did wereally expect China to dismantle its state-owned enterprises? When
we watched them sign that agreement, we cannot have reallyexpected them to abide by it. In future rule-making needs a broader
context. A context that is cultural, political and technical.

Written with the cooperation of David S. Spengler, who is a translator andconsultant specializing in corporate communications.

COVER STORY • 5

W

ill a Taiwan Emergency
Happen? Analyzing the
Challenges Facing China

By Yasuhiro Matsuda

There is talk that war could break out across the Taiwan Strait. The
US-Japan Joint Statement, issued at the summit meeting between
Prime Minister Yoshihide Suga and President Joe Biden in Washington
in April 2021, referred to the importance of peace and stability in the
Taiwan Strait. This was the first time since 1969 when Prime Minister
Eisaku Sato met with President Richard Nixon that the phrase had
been mentioned at a US-Japan summit.
Are military tensions around the Taiwan Strait really rising? Will war
break out across the Taiwan Strait? In short, will China use force
against Taiwan? Or will the use of force be avoided even if tensions
rise? Let’s consider the question from the perspective of thechallenges that China, which would be the party initiating the use offorce, would face.

Long-Term Difficulties of Unification by ForceFirst of all, the probability of the use of force against Taiwan by
China for the purpose of unification (military unification) is extremely
low for the time being. China lacks the ability to do that, and it’s hardto think it could be achieved in the next decade or so. Any war is a
victory if it achieves a goal, but if it cannot be achieved, even if thebattles are won, it is defeat. For China, the purpose of a war against
Taiwan’s armed forces would be to fully occupy a heavily armed island
more than 100 kilometers away, establish a new government, andmaintain its rule for a long time.
In order to achieve this, China would have to successfully attack
satellites in outer space, conduct cyberattacks, attack with ballistic
missiles, secure air and maritime dominance, conduct land invasion
operations, and supply its large forces that land without interruption.
At any stage, even if a landing operation is successful, if the US
military intervenes and the supply lines are interrupted, the troops thatlanded would be cut off and annihilated. Moreover, Taiwanese forces
would naturally fight back and could even take the war to mainland
China. No matter how strong China is in certain areas, such as
cyberspace, it cannot realize the occupation of Taiwan. China will notachieve its war objectives as long as Taiwan defends itself. Taiwan
does not have to beat China – it will win if it does not lose. In this way,
any operation to fully occupy Taiwan would be too costly and risky,and extremely difficult for China to undertake.
Moreover, it would escalate into a large-scale war for as long as
Taiwan resists. In addition, if the United States and China entered into
conflict in earnest, unless the US mainland was hit by nuclear
18 Japan SPOTLIGHT • January / February 2022

Author Yasuhiro Matsuda

weapons, China would become a battlefield and suffer damage. Any
operation by China to seize Taiwan by force would be a head-on
challenge to the post-World War II international order largely createdby the US. The US would have the military option of inflicting moredamage on China than it could stand, in the short term at least.
How would China respond to any such military attacks by the US?
Would it overcome the temptation to use nuclear weapons? But if
China showed even a slight readiness to launch a preemptive nuclear
attack on the US, the US should not hesitate to launch a first suchstrike on China. In other words, a war against Taiwan is a war thatmight never end and would be easy to escalate. So in whatcircumstances would China make the decision to launch a war inwhich it may fail to occupy Taiwan, lose its opportunities fordevelopment, and escalate the conflict to a possible nuclear exchangethat could lead to the destruction of humanity?
It is likely only if the Chinese leadership makes serious and unusual
miscalculations. Moreover, any such war would take several months toprepare and surprise attacks would be difficult. Taiwan, the US, Japan,
and other nations will know in advance if China plans to embark on
this great war, and the Chinese attack would begin in a situation where
Taiwan is most strongly defended. Yet China would not have wonunless it completed a full occupation of the island.
For this reason, we can conclude that the likelihood of China
choosing to use armed force for unification is extremely low for thetime being.

China’s Fundamental Contradictions
It is easier to understand this issue from the point of view of China
itself. Its plan to attack Taiwan has huge contradictions. As mentioned,
US intervention is what it fears most. China has the ability to occupy
Taiwan by force unless the US intervenes. But if China attacks Taiwan
only to occupy it, US forces in Japan such as in Okinawa immediately
next door would not be attacked or harmed. Nonetheless, the US
might choose to intervene by easily using such unharmed forces in a
Taiwan emergency. With any such military intervention by the US,
China’s attempt at unification by military means will be difficult. Even if
the possibility of such US military intervention is insignificant, China
cannot simply neglect that possibility.
That’s why China is taking a purely military perspective and would
launch operations to attack US bases in Japan from the beginning of
the Taiwan attack operation. And as an attack on US military bases inhttps://www.jef.or.jp/journal/

Japan is also an attack on Japan itself, Japan’s Self-Defense Forces will
also counterattack. If Japan and the US are attacked, the probability of
a US counterattack and intervention in the Taiwan emergency is 100%.
In other words, whether China attacks only Taiwan or attacks the US
bases in Japan first, it has no choice but to act on the assumption of
100% US military intervention.
How does China resolve this contradiction? By having the Chinesearmy build the ability to annihilate US forces including those in Japan,
South Korea, Guam, and Hawaii in battle and making the timenecessary for the Taiwan occupation, as well as by increasing its
nuclear capabilities, including intercontinental ballistic missiles(ICBMs), China will build a situation in which the US could neverconfidently intervene. China’s military build-up is clearly moving in thisdirection. By the middle of the 21st century, China’s goal is to competewith the US as the world’s leading military.
The question is whether the US, Japan, and Taiwan will allow China
to take more than 20 years to bring about this situation. If they do, thecapabilities of the US and China will eventually be reversed. If they do
not tolerate this and continue to maintain the current gaps incapabilities, the status quo will be maintained for a longer period oftime. At a time when China’s medium- to long-term trend is almost
fixed, the current state of the Taiwan Strait depends on what decisions
the US, Japan, and Taiwan make and implement to maintain the statusquo.

However, what China would lose is great. Simply put, by taking the“outposts” of remote islands, there is a greater possibility that it would
not be able to occupy Taiwan, its principal target. For example,
hundreds of Taiwanese troops are deployed in the Pratas Islands. Ifthey die in war or become prisoners of war, they will strengthen theanti-China feelings and resistance of Taiwan residents. Also, China has
no control over how much the Taiwanese army will fight back, andeven a small attack on mainland China could lead to a gradualescalation as it would force a counterattack.
In addition, with China’s moves to change territorial boarderlines in
the South China Sea by using force, Vietnam and the Philippines, bothof which have territorial disputes with China, and Japan, which isunder pressure from China over the issue of the Senkaku Islands,
should feel a sense of crisis about China’s actions and strengthencountermeasures against them. The sense of crisis in the US, theUnited Kingdom, France, Australia, and other countries that are waryof China’s claim of the Nine Dash Line in the South China Sea and theestablishment of a military base would also rise rapidly. The US would
strengthen its support for Taiwan. In other words, the capture of
Taiwan’s main island, which is China’s principal goal, would be difficult
to be realized by the occupation of these small islands in the South
China Sea.

Occupation of Remote Islandsin the South China Sea(B) is Kinmen Island and the Matsu Islands, a group of islets on the
coast of Fujian Province. However, there is not much that China will
gain from occupying these islands. These are parts of Fujian Province,
where exchanges with mainland China are thriving and relations are
good, while many residents are also opposed to Taiwan’s
independence and dislike the Democratic Progressive Party (DPP)
government. What merit would there be for China if it kills themthrough use of force? Also, China does not rush to take territory that it
could take at any time. Hong Kong is a good example. China tends tochoose escalation only when it is inferior.
In addition, both Kinmen and Matsu have Taiwanese forces
deployed there, and they might counterattack by hitting Xiamen andFuzhou on the other side. China has no control over the actions of the
Taiwanese army, and even if China were to win Kinmen Island, if
Fuzhou and Xiamen were exposed to war and damage, the Chinese
government would have difficulty proclaiming “victory” to the people.
However, since Kinmen and Matsu are also not in the realm of“Taiwan”, they are not an area applicable to the Taiwan Relations Act.
The US has no responsibility to defend them. Having said that, the US
may not necessarily intervene 100%. When China launched a massive
shelling of Kinmen Island in 1958, the US intervened by sending alarge number of aircraft carriers. These islands were not part of the
US-China Mutual Defense Treaty at the time, but the US dispatchedtroops to Taiwan. So it cannot ultimately be denied that an attack on
Kinmen could lead to US intervention.

Next, let’s consider the probability that China will use limited force
which is unlikely to be counteracted by the US. Such limited use offorce can be divided into several cases. The targets of the attack are(A) remote islands in the South China Sea, (B) remote islands along
the Fujian coast, (C) the Pescadores which are effectively controlled by
Taiwan, (D) the main island of Taiwan, divided into four parts.
(A) is the Pratas Islands (Dongsha Islands) controlled by Taiwan and
Itu Abba island in the Spratly Islands (Nansha Islands) that Taiwan also
has effective control over. Since 2020, China has been flying military
aircraft along a route connecting Taiwan and the Pratas Islands. Most
cases of Chinese military aircraft entering Taiwan’s Air Defense
Identification Zone (ADIZ) go along this course. If Chinese forces
attacked and occupied the Pratas Islands and Itu Abba, Taiwan would
have almost no way to stop them. These remote islands are out of therange of Taiwan’s main weapons. Also, even if Taiwan dispatches
military aircraft and ships, it must engage the Chinese army in an area
where China has secured air and maritime dominance. Where Taiwan
fights back, China should be able to easily overcome it.
Moreover, there is no responsibility for the US to intervene on the
Taiwanese side with regard to remote islands in the South China Sea.
These islands are not in the realm of “Taiwan of historical meaning”
and are not under the scope of the Taiwan Relations Act. So at firstglance, China appears to be able to carry out a “perfect war” there thateliminates Taiwanese forces and completely occupy these remoteislands.

The Occupation of Kinmen & Matsu

Japan SPOTLIGHT • January / February 2022

19

Limited Use of Force Against the Pescadores& Taiwan(C) is the Pescadores (or Penghu Islands) that have historically
been part of Taiwan and are within range of missiles of the Taiwanesemilitary. Taiwan will do its utmost to protect the Pescadores and even
if they are temporarily taken, Taiwan will surely try to get them back. In
the case of the Pescadores there could be sufficient intervention by USforces under the Taiwan Relations Act. In other words, attacking the
Pescadores would be almost synonymous with attacking Taiwan’s
main island.
(D) The same is true in cases where a limited attack is launched on
the main island of Taiwan. China can use ballistic missiles to surpriseand destroy Taiwan’s military facilities and political and economic
centers at any time. But for what purpose it would do this is a bigquestion. As Taiwan’s forces fight back, if China stops attacking at
some point, Taiwan would proclaim to the world that China’s attempt
at unification by force has failed. With this, the Chinese government
will lose face. In other words, as I pointed out earlier, Taiwan wins if it
is not occupied, and if it does not lose, it wins.
In addition, attacks on (C) and (D) are the most likely to prompt US
forces to intervene. If China withdrew after attacking Taiwan because
the US military and self-defense forces intervened, the Communist
Party’s government would collapse. In these cases also, it is possiblethat China would become a battlefield due to Taiwan’s counterattacks.
Maritime transportation routes in the South China Sea and aroundTaiwan, which have supported China’s economic development, would
also be seriously affected. In other words, attacks on (C) and (D)undermine China’s development strategy from the ground up. China
would have to be prepared for enormous damage, even in the case ofa limited attack on the main island of Taiwan, and if it adhered to using
only conventional weapons, the US mainland would remain intact.
Moreover, in the short term, in addition to the above-mentioned
profit and loss calculations, there are circumstances in China thatprevent it from launching armed attacks in terms of timing. This isbecause the 20th Party Congress scheduled for autumn 2022 will
determine whether President Xi Jinping will serve a third term, anduntil this is ensured no mistakes would be allowed by the Xi
administration.

Military Provocation Type of Use of Force That Is
Likely in the Short Term
So it is not a question of whether the use of force is impossible. For
example, if China “subjectively recognizes” that Taiwan and the US
have “provoked it beyond the limits of patience”, the probability ofusing force increases. Such provocation might come about if Taiwan
clearly moved to de jure independence and if the US recognizedTaiwan as a state, or sent a large US military force to Taiwan, or if the
US president visited Taiwan. With such provocations, the Chinese
Communist government would believe that unless it demonstrated its
strong will by military force its regime would collapse. In this case, theprobability of China’s using force would increase at a stretch.
20 Japan SPOTLIGHT • January / February 2022

However, it would be a limited symbolic use of force because it
would simply be to demonstrate a “strong will”. In other words, itwould be a “military provocation type” use of force that does not
actually change borderlines of territory or cause Taiwanese casualties,
and would stop immediately after implementation and end without any
counterattacks by the other parties. For example, there could becountless scenarios, such as firing ballistic missiles onto a highsummit in Taiwan where no one lives. The purpose would be to warn
the US and prevent a US-Taiwan approach. China could avoid a
political crisis by claiming it had won a major victory, and that Taiwan
and the US had been afraid, after carrying out such a provocation.
Since the end of the 1950s, China’s use of force on issues ofsovereignty and territory has often been symbolic and limited, with the
exception of the 1974 Naval Battle of the Paracel Islands, in which it
actually captured the territory that the opponent was defending. In
many cases, when China has recognized that it has become extremely
disadvantaged, it has used limited symbolic force to break the situation
at once, and immediately withdrawn and propagated a victory. The
possibility of such a “military provocative use of force” is far from low
and could happen at any time.

“Coercive Peaceful Unification”
Because Xi has won three elections, Taiwan, the US and Japan
should pay attention to the medium- to long-term possibility of“peaceful unification by coercive measures”. This is unlike the“peaceful unification through discussions with the Taiwanese
authorities” that Deng Xiaoping originally envisioned. It assumes that
Taiwan is isolated and its armed forces surrender without fighting.
Although the possibility of the Xi administration moving to pursue
unification by force is small, in 10 or 20 years China should have evengreater military power to achieve this.
In order not to make China think it can do so, it is essential tocontinue to meet the following three conditions at the same time.
These are the three conditions for maintaining the status quo. First, theUS does not abandon Taiwan; second, the US-Japan alliance remains
strong; and third, Taiwan maintains the threat of force. Even if one ofthese factors is missing, China will remain afraid of miscalculation.
What we should primarily fear is the limited use of force of military
provocation types in the short term and peaceful unification by coercive
measures in the long run. In particular, the latter means that the era ofpeace and development in the region under US hegemony ends, andChina’s hegemony will be established. Therefore, the answers that I
offer to the question “Will a Taiwan emergency happen?” are notnecessarily good news, but rather represent a more serious situation.
We are in the midst of long-term strategic competition between the US
and China, and if we do not respond properly, tragedy awaits.
Yasuhiro Matsuda is a professor of international politics at the University ofTokyo’s Institute for Advanced Studies on Asia, and gained his Ph.D. from the
Graduate School of Law at Keio University. He spent 16 years at the National
Institute for Defense Studies (NIDS) of the Japan Defense Agency (later the
Ministry of Defense) as an assistant and senior research fellow. He specializes in
the political and diplomatic history of Asia, politics and foreign relations in China
and Taiwan, Cross-Strait Relations, and Japan’s foreign and security policies.

COVER STORY • 9Management that Embodies
Sophisticated Rules & Democracy
as Keys to Economic Security

By Toshifumi Kokubun

The Long Cold War: the Grand Strategy Japan Must
PursueMany business leaders look doubtful when I tell them that the“cold war” between the United States and China will be with us for
30 years or more. But they do not realize that a long cold war works
to the benefit of Japan and more broadly the world. Little do theyrealize that a peaceful environment is actually provided by a cold war
that does not metamorphose into hot, kinetic warfare.
The risk of war rises when the balance of power deteriorates
rapidly. When the balance between competing forces suffers aserious upset when not only the parties to the conflict but thesurrounding states also are unprepared for the newly emerging
reality, the resulting disruption while a new order is yet to emerge
will be seized as an opportunity by forces that seek to change thestatus quo.
We must understand that the pressure points for efforts to preventa cold war and for efforts once it occurs are completely different.
People who hoped that a cold war between the US and China would
not break out tend to hope for an early conclusion because they are
driven by the desire to calm the waters and put a quick end to thesituation. But that only invites the rapid escalation of tensions,leading to the worst of outcomes.
Therefore, Japan should adopt as its grand strategy the
prolongation of the US-China cold war, using its weight as the thirdlargest national economy to bring an end to it in a peaceful manner.
That is the grand strategy that must be shared between the Japanese
government and Japanese businesses. The government shouldincorporate it into its economic security strategy and businesses
should use it a premise for their management strategies as a newsocial responsibility of theirs.
The assumption here is that the US and China, as the parties to theconflict, compete to come up with innovative policy initiatives insuccession with no intention of prolonging the cold war. The
Japanese government and businesses must have the strategicinterpretative capacity to drive policy in a direction that helps prolong
the cold war and the applicative capacity to incorporate this in theircorporate behavior.
It is not easy, however, when incorporating new corporate
behavior at the global frontlines of Japanese businesses, to promote
new investment and reform operations with the sole purpose of
responding to security needs. The institutional mindset of Japanese
34 Japan SPOTLIGHT • January / February 2022

AuthorToshifumi Kokubun

businesses, who have long maintained a distance from security
policy, will surely generate factions that oppose this or urge caution,
making it difficult to produce a consensus among them. One
effective way to break through this resistance is to apply this throughtrending management methods aimed at enhancing business results.
Businesses should look out for factors that help prolong the cold war
in the new management methods that are being spawned and use
them for the twofold purpose of prolonging the cold war andimproving business results. In other words, pursue dual intentions inmanagement methods, much like the pursuit of dual use withtechnology.

Rulemaking from a Strategic Interpretative
Capacity Perspective
Slowing down China’s growth secured by unfair means is an
example of “strategic interpretative capacity” that was started by theadministration of President Donald Trump and has been maintained
under the administration of his successor Joe Biden. Maintaining
restrictions on US exports related to newly emerging technologies toChina and beefing up the Committee on Foreign Investment in the US
are aimed at preventing technology development that is not based onhealthy competition and instead utilizes such means as cyberattacks
and forced labor and slowing down the speed of China’s
technological catchup. The conflict will not escalate into a hot war as
long as the US believes that it maintains a certain level oftechnological superiority, so it helps to prolong the cold war when
Japan aligns with the US in strengthening its own control over
information on emerging technologies.
For Japan to effectively exercise its strategic interpretative
capacity, it is important to understand that the form of competition intechnological development in the US-China cold war is completely
different from what it was in the US-USSR cold war. During the
US-Soviet Union conflict, the competition took place in an unusualenvironment of limited scope, a war zone where walled-off military
and aerospace industries worked to meet military requirements. The
US-China cold war, by contrast, is a competition in which the generalpublic and ordinary businesses are corralled as customers. The
massive data accumulated from this customer base is used todevelop technology, and the goods and services produced as a result
are distributed broadly and deeply into society at large andweaponized. This competition requires a “process to corral (thehttps://www.jef.or.jp/journal/

general public and businesses) as customers in the general market”.
Since a business cannot acquire massive volumes of data unless it
satisfies people’s needs and secures a position for itself in themarket as a platform for indispensable access, it is essential to win
the intercorporate battle for customers.
What does this mean? Unless the government has the will toproactively control the competition environment and continuallyremakes and reshapes the institutional framework, businesses will
emerge that swiftly come to dominate the marketplace throughoverwhelmingly low-price competition backed by freeware
distribution and government subsidies. When a specific businessacquires excessive dominance over its market, the development of
its technology is accelerated, creating the risk of the technology
being converted to military use and upsetting the balance of power.
At the same time, governments may weaponize businesses that
dominate markets and put them to wrongful use, destabilizing
society through clandestine efforts to influence and divide,
intentional malfunctions, and the like. Rapid deterioration of national
power as domestic order collapses could also push the US-China
cold war towards a swift, violent conclusion. The US-China cold war
requires the strategic interpretative capacity to identify as a security
threat the emergence of businesses that dominate the market to thepoint where they have too much influence on society in general.
This means that it is useful to manage competition to decelerate
the pace of market dominance by specific businesses by continuallyremaking the rules that govern the fight over customers in themarketplace with strategic intent to make them more complex anddifficult. Continuously remaking the rules and repeatedly destroying
monopolies should be interpreted as the prolongation of the cold
war.
Forced labor is one issue where this policy is relevant. It creates
the risk of businesses using labor unfairly to conduct low-cost
production, distort healthy price competition, dominate the market at
unreasonably low prices, and rapidly destroy the balance of power.
Human rights due diligence over supply chains is a rule aimed at
avoiding this risk. It forces businesses to transition to “moresophisticated management” that incorporates the cost of
establishing and operating institutional frameworks to exercise due
diligence and to diversify areas of investment. Market domination
decelerates as a result.
Anti-trust law, which is under review in the US, also helps toprolong the cold war. The purpose of anti-trust law has been to stopbusinesses from using their dominant position to “harm theconsumer”. However, the argument that global technology
companies should be dismantled turns on the “social disbenefits” ofthe harm inflicted on democracy as their market dominance is used
to distribute fake news and conduct influence campaigns eventhough their products may be free of charge and convenient for theirusers. In an innovative twist, the scope of the disbenefits of market
domination has been expanded from consumers to society as awhole.
China also appears to be aware of this risk. In 2021, the Chinese
government suspended the Ant Group’s IPO and ordered its
reorganization as a financial holding company, conducted antimonopoly investigations against DiDi, Meituan, and other platformbusinesses, and required mandatory government examination of any
Chinese corporation with personal information on more than
1,000,000 individuals before public listing overseas. What does all
this mean? That as powerful as the Chinese Communist Party may
be, its influence no longer reaches into the details of corporations
that have come to dominate markets, so the Chinese government has
begun to develop rules that eliminate the risks generated by theoligopolies before they become a threat to sovereign authority.

Managing Competition by Developing Rules that
Delay Market DominanceJapanese businesses must understand that prolonging the
US-China cold war is the grand strategy for Japan and that theirgreatest social responsibility is to link their corporate strategies tosupport it. In their engagement with the creation of rules todecelerate the rapid concentration of market shares or to dismantle
oligopolies, businesses must have a deep understanding of theintentions underlying the security strategy, take a positive view ofrules that force change, and turn them into an opportunity.
For example, the US and China have placed climate change policy
as an area for cooperation; Japanese businesses should be able tolead rulemaking here to prolong the cold war. Although CO2 currently
dominates the public debate, declining groundwater resources havealso become a serious social problem. Adding a mechanism to offset
water consumed in the supply chain helps prolong the cold war in
the sense that it increases the matter for which sophisticated rules
must be developed.
There are many ways in which the rules regarding water can be
Japan SPOTLIGHT • January / February 2022

35

enhanced: increasing the ratio of recycled wastewater, mandating therecovery of water equal in amount to the water consumed by storing
rainwater, and allowing the manufacture of products that requirelarge amounts of water to be produced only in locations where there
are sufficient water reserves, to name a few. Specific action bybusinesses to help prolong the cold war means coming up with theirown proposals for rules and actively advocating them instead ofleaving these initiatives in the hands of governments.
The European Union is moving forward on the circular economy
path. Already, Germany has limited public procurement of
information and communication technology (ICT) equipment anddevices to those using 90% or more recycled plastic, while France
has begun levying fines on wrapping other than recycled plastic.
Japanese businesses may see the EU’s “green” rules as abothersome cost, but they should reposition this as rulemaking that
prolongs the cold war and adapt proactively to those rules andspread them worldwide.
If your company is an industry leader, it should take its
sophisticated efforts to the public as voluntary rules and encourage
competitors to follow suit. It should also be useful for industries toadopt prolonging the cold war as an area for cooperation, consider
new voluntary rules together, and set up an institutional framework
to push their adoption worldwide. Rulemaking should cover supply
chains as well, obviously. Efforts should be upgraded, and only the
suppliers that undertake them should be part of supply chains.

Purpose-Driven Management
Another example of dual intention that I would like to take up is
purpose-driven management, a newly trending management methodthat has been drawing attention in recent years. Businesses are
beginning to adopt it to nurture innovation-generating creativity anddevelop organizations that continuously attract top talent.
Specifically, this management method enhances the independence
and creativity of individual employee by encouraging dialogue within
the company that links the significance and objective of the tasks
assigned to each employee to the purpose of their lives.
Another way of understanding this is as the liberalization anddemocratization of the organization management process. Now,business management theory has evolved by absorbing strategy andefficiency from research on war and military organizations. This is
the reason why, even in liberal democracies, a business is organized
36 Japan SPOTLIGHT • January / February 2022

by surprisingly authoritarian principles. Owner-run businesses are
particularly likely to practice top-down management under powerful,commander-in-chief leadership.
While businesses tend to take an authoritarian approach in theirorganization management, purpose-driven management emphasizes
the values of the individual by taking the intentions and feelings ofthe employees all the way down to the lowest levels. This makes thereflection of a wide range of opinions on management inevitable andliberal and democratic debate unavoidable. In other words, when aglobal company employs purpose-driven management in thebusiness activities at all its bases under authoritarian and democratic
regimes alike, it is seeding democratization movements everywhere.
Sustaining democracy has become so much of a challenge
worldwide that one proposal in security circles prioritizes preventing
democracies from sliding back into authoritarianism over increasing
the number of democracies. In this context, it will be effective forJapanese businesses to undertake purpose-driven management withthe dual intention of helping to stop backsliding in democracies andaccumulating democratic organization management experience
under authoritarian regimes.
My long years of experience as an officer in global companies tellme that in seeking to achieve a management objective in an
organization that includes people in an authoritarian state, there is atendency to assign someone to a high-level, powerful position andhave everyone obey that person, the assumption here being thatswift decision-making is for the best. Decision-making in democratic
operations requires time. So, in order to make such practices firmly
embedded in society, it is essential to increase the number of people
who have experience in a process that comes across as slow andinefficient.

Developing Human Capital Capable of Avoiding
Conflict Escalation
Human capital development is another case with dual-intention
potential. On the corporate frontlines, employees are transferred
between democracies and authoritarian states as a matter of course.
Meanwhile, businesses have come to invest heavily of late in humancapital with the aim of achieving diversity and inclusion, or D&I for
short. D&I is a management method that accepts diversity innationality, values, gender, and culture and turns the diversity into astrength for the organization. It will be useful to develop humancapital with the understanding that promoting D&I leads to more
people in your business who accept mutual differences and coexist
without increasing tension in two different political regimes,
democratic and authoritarian.
Achieving D&I requires the upgrading of basic abilities that arenecessary worldwide. It must be combined with training to eliminate
unconscious bias. It is essentially the development of human capitalthat seek real, fundamental causes, do their own thinking based on
facts instead of being overwhelmed by prevailing views andauthority, and draw conclusions rationally. Developing human capital
capable of believing in the possibility that we can understand eachother even if we hold different views, capable of respecting others
and accepting diversity. This may seem at first glance to be selfevident, but it is the outcome that a well-known Japanese auto
manufacturer always seeks in constructing its human capitaldevelopment programs. Moreover, this company tells its employees
not to limit this way of thinking and attitude to the company but tospread it more broadly to other stakeholders as well.
In the US alone, wracked by division, Japanese businesses
employed 860,000 people as of 2016, second only to the British
contribution (JETRO Regional Analysis Report, Jan. 31, 2019). If
Japanese businesses can develop such human capital at the global
level and have their business partners follow suit, democracies will
have more citizens who are capable of independent, rational thinking.
This will help stem the tide of fake news and populism.
In authoritarian states, when more citizens become capable ofindependent, rational thinking, we could hope that expectations
towards the regime can be maintained at a reasonable level, making
it unnecessary for it to distract public attention at home with hardline
diplomacy. Learning the value of democratic operations within thebusiness may arrest their devotion to the authoritarian regime anddeter it from becoming further radicalized or running amok. It will beeffective for Japanese businesses to interpret the massive global
workforce that they command as the third-largest economy in theworld as assets for prolonging the cold war and act accordingly.
War has occurred between countries even as the economic bond
between them grew tighter. But it will be a historical first if global
businesses that rival national economies recognize the maintenanceof peace as their social responsibility and undertake the developmentof human capital to prevent cold war from turning into hot war. The
Japanese government and Japanese businesses should take the leadin this area with the objective of prolonging the cold war. In order forJapanese businesses to promote this, it will be necessary to increase
investment in developing the capability of their employees to levels
appropriate for strategic resource allocation and to incorporate this
into their respective corporate strategies.

Conclusion
It is essential for Japanese businesses to switch to a businessmodel geared to meeting social issues if they are to take the lead in
sophisticated rulemaking and to identify dual intention in new
management methods. Sophisticated rules require an aggressive
posture to meet social issues through market mechanisms.
Discovering dual intention requires the will to deconstruct the
US-China cold war from multiple perspectives into social issues thatsurround the business and recompose them into social issues forwhich new management methods can function as the means ofresolution. And business models and an ecosystem that transformssocial issues into profit opportunities must be established for this tohappen.
It is necessary for Japanese businesses to earn profits over thelong haul while playing a role in prolonging the cold war between the
US and China. They should develop sophisticated rules, spread themworldwide, and continuously amend them so that the cost of
securing new customers rises and more time and resources are
devoted to the management reforms necessary to adapt to the rules.
In addition, they should look at new management methods that are
drawing attention to identify factors that contribute to prolonging thecold war. When adopting those methods, they must aim at
prolonging the cold war in addition to improving business results.
Toshifumi Kokubun is a project professor of Tamai Lab., Economic Security
Research Program at the Research Center for Advanced Science andTechnology of the University of Tokyo, and professor at Graduate Tama
University and director of the Center for Rule-Making Strategies at Tama
University. He holds a Master’s degree in Public Administration from the
Graduate School of Public Management at Waseda University, and has held
numerous positions as a special policy adviser to the Japanese government andLiberal Democratic Party as an expert on Economic Security.

Japan SPOTLIGHT • January / February 2022

37

COVER STORY • 1

ARoundtable with Teiko Kudo, Prof. Yukari Takamura, Tatsuya Terazawa, & Masakazu Toyoda

ssessment of COP26 & the
Challenges Ahead on Japan’sPath to Carbon Neutrality

By Japan SPOTLIGHT(Online Roundtable on Jan. 18, 2022)
Participants

Teiko Kudo

Prof. Yukari Takamura

Assessment of COP26
Toyoda (Chairman of JEF): Today, we bring together threeoutstanding opinion leaders to conduct an “Assessment of COP26
and the Challenges Ahead on Japan’s Path to Carbon Neutrality.”
From academia, Prof. Yukari Takamura from the University of Tokyo,
from finance, Teiko Kudo, a member of the Board of Directors at
Sumitomo Mitsui Banking Corporation, and from the intersection ofacademia and pragmatism, Tatsuya Terazawa, chairman and CEO of
the Institute of Energy Economics, Japan.
Let’s begin with the outcome of COP26. First, I’d like to have eachof you give an assessment of COP26. Was it a success or failure, andwhy? Prof. Takamura, could you go first?
Takamura: I have heard different evaluations of COP26 as a successor a failure. From my point of view, I would say that it was definitely
a success in terms of making significant progress in combatingclimate change. At COP26, countries have resolved to “pursue theefforts to limit the temperature increase to 1.5°C above pre-industrial
levels”, which has been stipulated as an aspirational goal under theParis Agreement, and I believe that the COP has made the 1.5°C goal
appear front and center on the international stage as a goal for theinternational community.
The damage caused by extreme weather events and disasters is on
the rise, which is considered to be caused by climate change. The
agreement to pursue efforts to achieve the 1.5°C goal is based on
the most recent scientific findings, such as the ones provided by the
https://www.jef.or.jp/journal/

Tatsuya Terazawa

Masakazu Toyoda

Intergovernmental Panel on Climate Change (IPCC), which indicatesthat it is necessary to limit temperature increase to a much lower
level so as to mitigate the risk of future climate change. It is also
commonly recognized that emission reductions over the next 10
years, up to around 2030, are critical to achieving the 1.5°C goal.
In the run-up to COP26, many countries, including Japan, set
carbon/climate neutrality goals. Major industrialized countries share
the goal of achieving climate neutrality by 2050, while China, Russia,
and Saudi Arabia, a major oil producing country, also aim to achievecarbon/climate neutrality by 2060, and India by 2070, at the latest. If
all of these goals are realized, it is expected that the temperature rise
would be limited to about 1.8°C. COP26 has made the international
community come the closest to the 1.5°C goal in a decade bybringing out many countries’ pledges.
The reason for being evaluated as a “failure” is that the level ofemission reductions in 2030 does not meet the level necessary toachieve the long-term goal, even though the long-term goal ofachieving climate neutrality by around 2050 has been firmly pledged
and confirmed by countries. I think this is the reason for attracting
the harsh criticism, especially from the younger generation.
Kudo: Some 121 countries had committed to carbon neutrality by
the end of COP25, but other than the EU countries, most were small,so the commitments added up to only 17.9% of total global CO2
emissions. But this time around, the lead-up to COP26 wascharacterized by growing enthusiasm for ambitious targets, withJapan, China, and the United States announcing national targets. By
Japan SPOTLIGHT • March / April 2022

5the end of COP26, more than 150 countries including all G20
members had adopted carbon neutrality with fixed deadlines. This
was a very significant outcome. In all, 154 countries accounting for
88.2% of global CO2 emissions had announced targets of carbon
neutrality by no later than 2070.
In a world that is increasingly politically and economically divided
over ideology and human rights, the significance of adopting acommon global target cannot be overstated. At the same time, as
Prof. Takamura pointed out, so many countries acknowledged 1.5°C
as the target, but there is no clear roadmap to reach it, and muchdisagreement among them. That is a problem.
Given the energy-profile and other differences among countries,
timelines and the means to achieve targets require flexibility.
Otherwise, the economic impact will differ according to existing
circumstances, and some emerging economies could see theeconomic gap grow. The Paris Agreement takes a bottom-up
approach in contrast to the top-down approach under the Kyoto
Protocol, which is important.
Terazawa: Speaking as a former government official engaged formany years in international negotiations at the Ministry of Economy,
Trade and Industry, I think it was a huge success just to reach an
agreement among so many countries. It was hard enough when I
had a hand in forging a consensus among the 20 participating
countries at the G20 Summit in Osaka in 2019.
This being the case, a wide variety of countries from emerging
economies like India to energy producers such as Saudi Arabia madepledges on long-term targets. It was an epoch-making event where
so many countries beyond all expectations made pledges. But as
successful as it was, issues remain unresolved. In particular, the gap
between developed and developing countries in their positions andmindsets became evident, as could be seen in the dispute near theend over whether coal-fired thermal power should be subject to“phase out” or “phase down.”
In the end, the different perspectives of developed countries,
which want to achieve carbon neutrality as quickly as possible, andemerging economies that face urgent realities including the need for
economic development, became obvious.

also soared. Even the price of coal is rising. And electricity rates havebeen rising as well in some countries. Could the recent spike inenergy costs – crude oil (Brent oil) is now more than US$90 per
barrel – be connected to climate change? Given the timing,coinciding with COP26, how should we assess the causes of soaring
energy prices?
Terazawa: It is difficult to cover all the factors because there are somany of them, but I would broadly divide them into four categories.
First, the corona crisis is still with us, but I am certain that therecovery of economic activities in many countries has nonethelessbeen more robust than expected and has led to the growth in energy
demand that we have been seeing. And because this was
unexpected, demand has grown without the appropriate rails inplace, including inventory.
Second, I’m not sure if it can be attributed to climate change, but
the weather has certainly been a factor. Many countries have been
going through a colder winter than usual, causing greater energy
consumption, while others have seen milder winds, leading to lessrenewable energy being supplied.
Third is the effect of the debate and measures taken regarding
climate change. Many countries are adopting the conversion fromcoal to natural gas as a major element of their decarbonization
strategies. Demand for natural gas has grown enormously as aresult, causing gas prices, LNG prices, to jump.
Fourth is the negative impact on supply caused by the growing
reluctance over upstream investment in fossil fuels as part of thedecarbonization trend, particularly among Western players, who arevulnerable to market pressure. In the past, when prices went up, so
did supply. This time it is not happening as much, and it is my viewthat the debate over the global environment is affecting supply. In
that sense, we may be talking about 2050, but we are already being
affected now in various ways.

Causes of Soaring Energy Prices

Toyoda: Ms. Kudo, I’d like to put the same question to you. OPEC+
oil producers appear to be fulfilling their production quotas in theface of soaring prices, but I’m hearing that there is still not enoughproduction to meet demand. Meanwhile, developed countries,
particularly some consumer countries, are making releases fromtheir strategic reserves. What do you make of this situation?

Toyoda: The second issue on our agenda is the following. COP26
coincided with rising crude oil prices. Spot prices for natural gas had

Kudo: The OPEC+ countries are maintaining a higher productionlevel, but they are wary of further raising output because they want

6 Japan SPOTLIGHT • March / April 2022

to avoid excess supply causing prices to weaken in an eventual
economic downturn, while demand has been recovering more
quickly than OPEC+ had assumed. I think this is the explanation.
Some consumer countries have rolled out releases from theirstrategic reserves, but the amounts have been limited and have not
had much effect on prices.
In the past, I assume that there would have been businesses andgovernments beginning to make investments with an eye on the longterm even if it would result in oversupply in the near term. But now
they are very much afraid of ending up with “stranded assets”, so
are more likely to want to limit their exposure to future risks.
Accelerating decarbonization and stabilizing crude oil prices
simultaneously is a daunting task. It is very important in this respect
to consider how we are going to maintain the energy supply system
including the role of other fossil fuels and nuclear power as well as
the shift to hydrogen and ammonia. It is essential that we clearly
indicate how much fossil fuel we will need for the future and sustain
investment accordingly.

sense of urgency about climate change, and therefore, in its words, it
may be necessary to give a certain role, at least during thetransitional phase, to nuclear power – which does not produce CO2
emissions in its operation – or gas-fired power, rather thancontinuing to use thermal power with high CO2 emissions.
In this sense, it can be said that this would reflect one of thedirections of the transition to an energy supply that can both solve
the problem of climate change and stabilize energy prices, as I
mentioned earlier, by trying to secure energy diversity in financing.
Of course, not all nuclear power is automatically considered as“green” in the taxonomy. As the European Commission document
also notes, it must satisfy the relevant standards for nuclear waste
and safety. And I understand that gas-fired plants must also satisfy amaximum emission intensity threshold. In all cases, I think this is atypical example that raises the question of how to manage thetransition to carbon neutrality and how to address the challenge ofclimate change while maintaining the stability of energy supply andprices.

Toyoda: Achieving a balance between economic stability anddecarbonization will test the capability of national governments. Prof.
Takamura, I have a question for you here. Featured prominently inthe debate on this point is the reevaluation of the role of nuclear
power, particularly in Europe. France had been cautious for years but
has now begun discussing the resumption of constructing new
nuclear power plants. The EU talks on taxonomy never seemed to be
far from reaching a conclusion, but there now seems to be more
willingness to include nuclear power and/or gas-fired thermal powerin environmentally sustainable economic activities during thetransitional phase.

Assessment of Japan’s Sixth Strategic
Energy Plan

Takamura: I think that the current surge in energy prices is a very
typical recent event that raises the question of how to manage thetransition to carbon neutrality and how to address the challenge ofclimate change while maintaining the stability of energy supply andprices. Given the global nature of the energy market, we need to
manage it well on an international level, but it goes without saying
this is much easier said than done since the international community
has no centralized global authority. I think this poses a really difficult
challenge as to how to do this.
Recent discussions on EU taxonomy yield a typical example of thereevaluation of nuclear power. If you look at the European
Commission’s proposal for the EU taxonomy, there is a very strong

Toyoda: Let’s turn our attention to Japan’s Sixth Strategic Energy
Plan. The plan has two milestone years, 2030 and 2050. We’ll begin
with the assessment of the challenges for Japan for 2030 with
COP26 as the backdrop. I’d like to take up coal-fired power first. This
year’s G7 summit will be hosted by Germany, which is a vocal
advocate of eliminating coal-fired power. But Japan will still be using
coal-fired power in 2030. How can Japan justify its position in theface of German demands? Or could it be that Japan’s 46% reductionof greenhouse gas emissions by 2030 is not enough? The EU
projects a 55% reduction over the same period, the US 50-52%.
Japan may be criticized for not doing enough. What are your viewson this, Ms. Kudo?
Kudo: It is our responsibility as a developed country to clearly
demonstrate how we will achieve our 2030 target. We may be
pushed to raise our target, but the 46% reduction itself will not beeasy for Japan. It is more important to demonstrate how we will
steadfastly work towards this objective.
As you are aware, the Japanese government has set the target for
renewable energy in the power supply composition for 2030 at
36-38%. However, even with the ambitious assumptions put
Japan SPOTLIGHT • March / April 20227

together by ministries and agencies added up, there remains a 37
billion kWh deficit, so the renewable energy plans through 2050
must be moved up. Here, there’s hope that there is room for
expanding solar and wind power. Offshore wind power has great
potential in Japan, but it will be difficult to secure a significant
amount by 2030, given all the necessary assessments and theconstruction period. So the extent to which the targets for the
installment of solar panels on new housing and other sites can be
met will be crucial.
But bridging the 37 billion kWh gap with solar power requires
30GW in capacity, which in turn requires a 76 trillion-yen investment.
There are hurdles ahead as we fulfill our responsibility as adeveloped country to achieve the 2030 target. I fear that even thiswill be difficult to achieve unless the public and private sectors work
closely together.
In response to possible demands that we phase out coal-fired
power, we face the same issue that all countries do. Specifically, it isnecessary to achieve the 2030 target while sustaining economic
growth, not to mention stable electricity supply. So we should
identify the conditions that would make a phaseout possible, thenfigure out how to satisfy those conditions.
Toyoda: Let me ask you, Mr. Terazawa. The International Energy
Agency (IEA) presents a rosy scenario in which the response to
climate change produces economic growth and there is a net benefit.
What are your views on this point?
Terazawa: The IEA’s analysis takes a simplified approach in which it
essentially makes assumptions on the amount of investment in solar
power, wind power, and the like to achieve carbon neutrality andapplies a multiplier to the amount to calculate the effect on GDP. This
is too simple in my view. Let me give three reasons.
First, rising energy prices are inevitable in the approach to carbon
neutrality, but the IEA’s analysis does not take into account the effectof the higher prices. This is a significant omission.
Second, money is not unlimited, so investment in renewables andthe like means that funds that would have been directed elsewhereare being diverted to that purpose. There’s a need to analyze the net
effect of the positive effects of the hypothetical investment thatwould have been made absent the investment in renewables and thepositive effect of the investment in renewables. It’s not there.
Third, the IEA analyses the global impact, so more renewables
mean more investment in solar panels, which is a positive for the
8 Japan SPOTLIGHT • March / April 2022

economy and employment. But think about where the solar panels
are being made. Countries that do not manufacture solar panels or
manufacture them but are seeing their shares decline, such as
Japan, will not see domestic production and employment grow justbecause domestic demand for solar panels grows. The economic
impact of carbon neutrality will be very different depending onwhether your national economy produces the necessary resources or
solar panels, or merely consumes them.
Unfortunately, Japan does not produce a wide variety of criticalminerals and imports a high proportion of its solar panels. The
impact of carbon neutrality on our country must be examined ingreater detail.
Toyoda: Prof. Takamura, what is your assessment of the overall 2030
energy mix? Renewables more or less represent a twofold increase,
while 27 nuclear reactors have to be operated at 80% capacity but
only 10 reactors are in operation now. Meanwhile, hydrogen andammonia have just been rolled out and only have a small share.
What is your assessment of the feasibility of the 2030 target?
Takamura: I also think that the IEA’s simulation analysis, as pointed
out by Mr. Terazawa, does indeed have some limitations. On theother hand, if we look at it another way, the challenge is how we canelaborate and implement climate policies to stimulate economic
growth and to create employment or at least to avoid a negative
effect on it.
I believe that none of the goals for the 2030 energy mix is easy toachieve. This time, in particular, Japan’s 2030 climate target and the2030 energy mix that supports it were decided so that they would beconsistent with the 2050 climate neutrality goal. This means that the2030 energy mix is a target towards which policies are to be
mobilized to enhance energy transition. In that sense, the nature andfunction of the energy mix may be different from the one in theprevious strategic energy plans.
As for renewable energy, I do think that it will not be easy toachieve. On the other hand, the 2030 renewable energy target in the2030 energy mix does not sufficiently reflect some assumptions
likely to be realized in the future. One is the cost reduction potentialof renewable energy. For example, the cost of offshore wind power
was not yet known on a commercial basis at the time, so thepotential for reducing the cost of offshore wind power generation
has been estimated rather conservatively.
The other thing is that the targets for renewable energy were

elaborated based on the amount of renewable energy expected to be
introduced under government policies and subsidies, starting withthe feed-in tariff scheme. Meanwhile, business efforts to switch
energy use to renewables to achieve their own climate targets are
gaining momentum. Some of these businesses use the feed-in tariffs
or receive government subsidies, but others do not. It is difficult toquantitatively assess the prospects for expanding renewable energy
which companies do on their own without government support, and
I understand that it is not fully factored into the renewable target in
the energy mix.
In this sense, the renewable energy target is not easy to achieve,
but I believe that it has a good chance of being achieved. The
challenge is to reduce the cost of renewable energy, and I think it isimportant from the perspective of reducing the cost that the existing
power system and its relevant rules, including the power grid andpower market, should be transformed to make them compatible withthe power system that allows and enhances the shift to renewableenergy as the main power source.
In addition, expansion of renewable energy will only be possible
where it is accepted by local communities where it occurs, so I thinkthat how to introduce renewable energy through local initiatives andin symbiosis with local communities is a critical issue for renewableenergy policy.
In my view, it would be very difficult to achieve the target for
nuclear power. The reason for this is that policy alone would not beable to bring more reactors into operation since the consent of thelocal communities is required in addition to meeting safety
standards. The difficulty here is that rolling out policy measuresalone will not lead to immediate change because there aredeterminant factors other than policy in play.
Lastly, as for new energy sources such as hydrogen and ammonia,
they are included in the 2030 energy mix in order to provide supportand incentives for the expansion of these new energy sources. I think
the challenge for hydrogen and ammonia in 2030 will be how far wecan develop the infrastructure for their introduction, including the
supply chain, and at the same time to reduce their costs throughvarious measures.
Terazawa: Achieving the 2030 targets for renewable energy requires
the acceleration of the introduction of renewable energy beyond the
speed with which mainly solar power rapidly expanded over the last
five years under the feed-in tariff system.
Now, the feed-in tariffs are going to be replaced by a new systemof feed-in premiums, and this is creating uncertainty. And solar
power in particular is facing increasing friction with local
communities. Japan has a huge lead over the rest of the world in theratio of solar panels to level ground unit. Golf courses and otherunused land had made the going easy under the feed-in tariff regime.
But going forward, it will be necessary to install solar panels wheremore reconciliation with local communities is required. This musttake place while the system is transitioning from feed-in tariffs tofeed-in premiums, making the acceleration even more difficult.
Acceptance from local communities will be even more important for
renewable energy going forward.
The target for nuclear power will be very difficult to achieve if thecurrent speed of safety examinations prevails. Of the 27 reactors thatmust be in operation to achieve the 2030 target, 10 are currently inoperation and seven more have been approved, but the other 10 are
still under examination. Of these 10, applications were submitted forthree of them in 2013 and four in 2014, so their examinations havealready taken seven, eight years. There are nine more reactors thatare not being decommissioned that are waiting their turn to be
examined. All this means that unless the safety examination system
is reinforced and the examinations are conducted smoothly andoptimally while upholding safety as the absolute objective, it will be
extremely difficult to bring all 27 reactors back to operation by 2030.
As for hydrogen and ammonia, cost reduction is necessary, butthey will inevitably be more expensive than other fuels. How can the
more expensive hydrogen and ammonia be deployed? The
government is doing research and development including
demonstration tests, but the path to actual deployment is a task forthe future.
Kudo: I see the energy mix in the new plan as a milestone on theroad to carbon neutrality. A clear roadmap must be given to makesure that it is reached. Using hydrogen, ammonia, and other fuels
and how we integrate digital transformation are the keys here.
The Green Innovation Fund provides support up to thedemonstration test stage, but the subsequent commercialization
phase requires massive funds. There is an urgent need for
discussion on how the public and private sectors should work
together on this.
Where digital transformation is concerned, there is a need to takeup the challenge of creating new business models and energy
management systems by developing and deploying technologies for
improving power generation efficiency and power storage while
Japan SPOTLIGHT • March / April 20229

pursuing optimization and controlling demand using sensors andartificial intelligence. If we do this, we should be able to achieve the2030 target.
Toyoda: The Sixth Strategic Energy Plan also addresses 2050. Whatis your assessment of the fact that it presents multiple scenarios forthe 2050 target?
Kudo: The results of the multi-scenario simulation including cost
structures for 2050 yielded many useful insights. If decarbonization
aimed at carbon neutrality is pursued without securing social andeconomic buy-in, there will be an inevitable backlash, making theefforts unsustainable. That is why a virtuous circle between theenvironment and the economy and strategies to achieve thiscompatibility are essential.
Climate change policy is a constraint that raises costs, so the key
is the balance between cost and growth: specifically, how do wesecure economic growth while absorbing those costs? It is also
necessary to consider securing the public’s consent to introduce
measures such as the waiver of levies on industries, like Germany
does, and the priority distribution of environmental values toexporters.
On top of this, it is essential to secure wide acceptance ofJapanese technologies that contribute to decarbonizing heat,chemicals, and transportation such as hydrogen and carbon capture,
usage, and storage, the so-called CCUS. The technology race isalready under way. Support from our government on rulemaking isessential.
In this area, it is necessary to find ways to facilitate the flow offunds to innovation. As a financial institution, we are prepared to beaggressive in assuming risk, and the private sector can provide thefunds for the introduction and deployment of establishedtechnologies such as renewables. But massive funds will benecessary in the initial stages for R&D and social implementation,
while banks are under the obligation to protect depositors, so there’s
a limit to the extent to which we can satisfy the need here. We wantto consider a combination of public- and private-sector funds where
public institutions provide some risk capital that can be leveraged tomobilize massive private-sector funds.
Takamura: This was probably the first time that we did a thoroughstudy of 2050 based on multiple scenarios. The insights obtained
from this are significant. In this sense, multiple-scenario studies
10 Japan SPOTLIGHT • March / April 2022

should continue to be necessary in the future as well. This time, the2050 energy/power mix was introduced as one of the reference
scenarios for scenario analysis, and the composition of powersources and energy sources in the scenario does not necessarilyreflect the outlook for costs. If the outlook for costs changes, the2050 energy mix considered as economically rational will alsochange. It is important to continue analysis based on multiple
scenarios with this understanding of the current scenario analysis
firmly in mind.
On the other hand, what was commonly recognized as important
through the scenario analysis is that we need to take a proactive
approach to the challenge of how to reduce the system integration
cost when renewables take up a larger share of the power supply, forinstance, induced by its declining costs due to further progress intechnologies. I think this is a point that everyone thought was very
important through this scenario analysis. In order to reduce systemcosts, it is necessary to consider measures on the demand side,
such as use of distributed energy resources including EVs andmeasures to induce energy consuming companies to locations withrich renewable energies, as well as maintenance and expansion of
the grid. This was a very important study in the sense that it clearly
identified these issues.
Terazawa: Broadly speaking, it was very useful to discuss multiple
scenarios for 2050. I’m being told that the discussions focused on a
choice between renewable energy and nuclear energy with the resultthat many other important issues were not sufficiently discussed.
Specifically, electrification led by renewables is expected to top out
at about half of the total energy consumption. So what about theother half? Hydrogen appears to hold the most promise, but what
are we going to do for decarbonization of the non-electricity sector?
Since that is actually where the strength of Japan’s industries isconcentrated, it’s very unfortunate that there was not much debate
on what accounts for half of Japan’s decarbonization needs and will
determine the future of Japanese industry. If you care about
economic growth in the future, this is where we should focus.
Second, other countries are putting a lot of effort into negativeemissions. China, the US, and European countries all include
significant amounts of negative emissions. It’s very unfortunate that
there is very little debate in Japan on this point.
Japan is blessed with an abundance of forests. Japan issurrounded by the ocean. But this is not being featured at all in thediscussions; the argument is as if we are giving up on setting up

much more solar power because level ground is limited here. Making
effective use of our forests and ocean to generate more negativeemissions should figure more prominently in the overall debate.
As for nuclear power, extending the operation life span of nuclear
power plants will grow in importance as a challenge with the passingof time. It should be extended from the initial 40 years to 60. But thisapproach has its limitations. The number of nuclear power plants will
decline in a business-as-usual scenario even with the extension to 60
years. A conclusion was unable to be reached on the role of nuclear
power on this occasion. There is a serious need for debate in depthon this issue.
Here, I am particularly concerned about hydrogen. Hydrogen is
given a major role in the industrial sector, but where is the massive
amount of hydrogen necessary going to come from? Importedhydrogen will be very expensive because the transportation costs
will be high. Hydrogen produced domestically from renewableenergy will also be expensive. A third option is to produce it with
nuclear power, which is what France is working on. In fact, this is amajor reason for France’s turnaround on nuclear power policy.
Protecting Japanese industries and jobs requires inexpensive andabundant hydrogen, but hydrogen that is imported or produced fromdomestic renewables is expensive. We can’t help losing out in theinternational competition in that case. If businesses cannot secure
cheap, abundant hydrogen, they will locate elsewhere. The debate on
nuclear power should be conducted more reasonably, including thematter of how we will produce the hydrogen to protect our industries
and employment.

Assessment of Carbon Pricing & Border Tax
Adjustment
Toyoda: I would like to go back to the global stage for our final major
issue. Carbon pricing is one of the two systems being promoted asmeasures necessary to achieve carbon neutrality. There is an
ongoing debate in Japan around two options for this – carbon tax
and emissions trading – and consensus is hard to come by.
The other is border tax adjustment, where the issue is the carbon
leakage from developed countries as a result of factories fleeing todeveloping countries. I would like to hear the views of our panelists
on these two systems.
Terazawa: We should reduce costs drastically in order to deploy
technologies that contribute to decarbonization, be they forhydrogen, ammonia, or whatever. As a practical matter, it is very
likely that they will remain expensive. Since it is unlikely that more
expensive technologies will be adopted as a matter of course,intervention through policy measures is inevitable. But carbon
pricing is one of many means of policy intervention, which include
regulation, subsidies, and price differential compensation. Carbon
pricing should be considered as one option among a range of policy
interventions. Given the pros and cons of each measure, selecting
the optimal options for the respective circumstances will be crucial.
The other point is to encourage the switch from environmentally
undesirable technologies to desirable technologies through carbon
pricing. This is predicated on the existence of desirable options.
That’s when carbon pricing could promote the switch from one to theother. Many decarbonization technologies are not actually available
yet. Carbon pricing should be considered as one among a variety ofoptions for policy engagement, keeping in mind the timeline for the
more desirable technologies becoming available as practical options.
Businesses look to the future. It is essential for the government toprovide predictability by showing how such policies and systems aregoing to take shape in the future instead of suddenly bringing themup at a future date for discussion.
As for border tax adjustment, I do have sympathy for the notionthat assuming an extra burden, regardless of what others are doing,puts your industries at a disadvantage in international competition.
But if you adopt this approach across the board, you might end up
advocating the extreme position of making border adjustments for allimported products that give rise to CO2 emissions.
The international trade regime under GATT and the WTO has beena key driver of economic growth since World War II. The reduction oftariffs under free trade agreements also helps the global economy.
There is a risk that this successful set of policies could be seriously
undermined depending on how aggressively border tax management
is pursued. I have sympathy for the desire to introduce border tax
adjustment. But if it is to be adopted, it must be limited to extreme
cases as a last resort. Otherwise, it will cause great harm to theglobal economy, so the system must be designed with the utmost
care.
Takamura: I think we need to seriously consider some kind ofcarbon pricing to make the value of carbon reduction, or in otherwords, the cost of emitting carbon, more visible, while the choice
between carbon tax and emissions trading depends on the design or
nature of the scheme.
Japan SPOTLIGHT • March / April 2022

11

If the value of new decarbonization technologies is not madevisible in the long term, there will be no corporate action to invest in
their development and to commit resources to it. In addition to new
decarbonization technologies, carbon pricing is also necessary as asignal from the policy side that will help companies respond to a
decarbonizing market and society by shifting their businessportfolios.
Of course, a carbon tax could be part of the debate as means tosecure revenue for supporting the transition to a decarbonizedsociety, and how the scheme should be designed will have
implications on allocation of costs. From these perspectives, it isvery important to consider carbon pricing. However, the mostimportant is how to give a clear signal about predictability that thevalue of emissions reduction will definitely increase in the future.
My second point is that under the Japanese system, businesses
make a variety of payments on and around energy, but it is difficult
to see from the outside that they are paying the cost of carbon
emissions. There are many policies and measures existing in parallel,with the result that the overall system is not designed to makebusinesses pay in proportion to their carbon emissions. In thissense, it is inevitable to re-examine the existing system when
discussing carbon pricing.
Finally, my view on border tax adjustment. Now, not only EU but
also Democratic members of the US Congress have also introduced
a proposal on border tax adjustment. This is what we must keep an
eye on. The effectiveness of climate policy is one of the strongest
reasons behind this. We, especially developed countries, import a lotof goods to run our economy and society, so we need to reduce ouremissions not only within our jurisdiction but also on a consumption
basis. There is also an ethical basis behind the call for border tax
adjustment. From the business perspective, it is important forbusinesses to firmly grasp and reduce the life-cycle emissions of
their products and services so that they will be well-prepared if andwhen border tax adjustment is introduced.
Kudo: In principle, I support the use of carbon pricing to reduce
emissions, in as much as it is intended to internalize an externality;
in practice, there are issues. We cannot achieve an optimal solution
unless safety, energy security, and other externalities are internalized,
not just emissions reduction.
It is necessary to maintain basic industries in Japan from anational security perspective. We should not discard an industry
solely for its CO2 emission factor. It is my understanding that our
12 Japan SPOTLIGHT • March / April 2022

government also believes that we should first consider voluntarymechanisms such as the “GX League” and aggressively promotetechnology innovation to reduce CO2 emission factors while
maintaining vital industries and employment.
As for emission rights, if we leave the matter to market forces, toomuch supply will diminish the policy effect, while soaring prices will
reduce economic growth. There’s also the possibility thatunsustainable technologies may be used, so the system must be
designed with care. Businesses also pay a variety of taxes that are
not linked to emissions. Automobiles, for example, are charged witha variety of taxes that add up to a very heavy burden. The time hascome to reconsider the overall tax system, its justifications, and how
the revenue is spent.
Meanwhile, in response to border tax adjustment as well as
national commitments and regulations, businesses are beginning to
identify the volume of their own emissions in order to maintaininternational competitiveness. Looking to the future, as emissions
are tracked with greater precision under a life-cycle assessment
approach, more policy options should become available. But first,
the important thing is to consider helping businesses identify thevolume of their respective emissions and providing incentives toreduce those emissions.
As a financial institution, we are often asked if we could provide
financing with carbon credits as a revenue source for repayment. It isdifficult to provide support for carbon credits unless there issufficient predictability in their volume and price. In addition tomeasures to invigorate the market, it would be easier to consider
providing finance if there were a system for their purchase by ourgovernment, like other countries are doing. The Japanese
government should not hesitate to express its views on border tax
adjustment. At the same time, it must be resolute in making sure that
our export industries are duly protected.
Toyoda: I think we have a consensus here that some form of carbon
pricing is necessary but that existing regimes need to be revisited.
As for border tax adjustment, it must be approached with caution
since we worry that it could link up with protectionism in developed
countries and generate a new North-South problem.
Thank you very much. This has been a great discussion.

Written by Naoyuki Haraoka, editor-in-chief of Japan SPOTLIGHT, with theassistance of TapeRewrite Corporation.

2Interview with Roland Kelts, contributing editor of MONKEY Magazine

MONKEY Magazine Exchanges
Literatures Between the US & JapanBy Japan SPOTLIGHT
Roland Kelts, a distinguished Japanese culture expert, is contributing editor of the English-language
edition of the literary magazine MONKEY – a journal that focuses on contemporary Japanese literature andAmerican literature in translation. He is also author of the best-selling book Japanamerica, and his articles,
essays and stories appear in several publications. He has taught at many universities, including New York
University and the University of Tokyo.
In an interview with Naoyuki Haraoka, editor-in-chief of Japan SPOTLIGHT, he talks about the birth of
MONKEY, the improving quality of translation, Japanese women writers, commonalities between Japan andthe United States, and cultural exchange in Asia.
(Interviewed on Feb. 3, 2021)

Birth of MONKEY
JS: How was the English-language

MONKEY born and how was it
developed? What is your role ascontributing editor of this magazine?

our first issue. It was published in 2011. I think
my role has been to help build a bridge between
Tokyo and New York and forge relationships withother partners in the US.

Attracting Readers

Kelts: The original idea for the English-language
JS: Generally speaking, Americaninterest in Japan has been declining.
Monkey Business came from Prof. Ted Goossen.
Instead, American interest in China
He is a scholar and translator of Japanese
has been rising. In this situation,
literature at York University in Toronto and thethere may be few publishers who may
editor of The Oxford Book of Japanese Shortbe interested in publishing magazines
Stories, a major anthology of Japanese fiction
on Japanese literature. Japanese
used in universities worldwide. His publisher
Roland Kelts
animation seems to be quite popular
asked him to create a new anthology. Ted wasin the US, but how can you attract readers to othermeeting with Motoyuki (Moto) Shibata, professor of Americankinds of Japanese culture?
Literature at the University of Tokyo, here in Tokyo in 2010, and Ted’s
idea was to take Moto’s literary magazine, called Monkey Business,
Kelts: When we started in 2011, obviously the most famous living
and make an English edition. Both Ted and Moto thought that there
Japanese writer was Haruki Murakami, who is still very popular. But
was a lot of new Japanese literature that was not available in English.
there was not such a great knowledge of younger Japanese writers.
They wanted to introduce new writers. So, that was the original idea.
However, I think that now, 10 years later, there is a growing interest
And Moto agreed with Ted, and then they came to me. They asked
in contemporary Japanese writers. It’s partly because there are so
me for help getting a publishing partner in the US because they felt
many great women writers in Japan today – and that is giving a fresh
they should have some kind of relationship with an American
perspective to the reader and a fresh style to Japanese literature.
publication. At the time, I was spending a lot of each year in New
Japanese women’s stories are really attractive now to EnglishYork City so I had some meetings with people in New York.
language readers, particularly Americans and Europeans.
Fortunately, Brigid Hughes, a friend of mine and editor of a New YorkThe second reason is that fans of manga and anime are now getting
literary magazine called A Public Space, said she would like to makeolder. And I think some of those fans now want to read different kinds
a partnership with Monkey Business. So that’s how we brought out

62 Japan SPOTLIGHT • May / June 2021

https://www.jef.or.jp/journal/

of stories from Japan. Kids who may have loved Pokemon, One Pieceor Slam Dunk are now a little bit older and are interested in Japanese
literature. Some pop culture fans are now reading Monkey Businessand MONKEY magazine.
The third reason is that the quality of translations of Japanese
literature has improved very dramatically over the past 10 years. Motosays that the quality of translations, especially translations done byyounger translators of Japanese to English, is much more sensitive tothe nuances of Japanese. Moto also told me that young translators
today can hear the music of the Japanese language and capture it inEnglish. I think the quality of translation is very important, and that has
grown the audience for Japanese literature.
Like I said earlier, pop culture has actually produced more interest inJapanese literature. I also think that compared to China, for example,
Japan feels much more accessible to Americans. They feel they canvisit Japan and indulge in Japanese popular culture, style and fashion.
It’s not so alien anymore. And so contemporary Japanese literature
may feel closer to the American reader today than contemporary
Chinese literature. At least for now.

Birth of the Japanese Magazine MONKEY
JS: The quality of translation of the contents of theJapanese magazine MONKEY, which was released
quite recently, is very good. How was the Japanesemagazine MONKEY born? According to Prof.
Shibata’s brief remarks on this magazine, an English
version exists. It’s a complicated story. Could you
please explain to me the relation between thesemagazines?

Kelts: In 2008, Moto introduced the Japanese version of Monkey
Business. He was partly inspired by American literary magazines.
Most Japanese literary magazines are kind of conservative. They are
published by major publishers largely to promote their own authors.
But in the US, literary magazines are very independent. So they arefreer. They can be very clever, innovative, irreverent and very funny.
They can publish more eclectic and eccentric stories and poems.
Moto wanted to create that kind of magazine in Japan. So that is how
Monkey Business came into existence in 2008. When we started theEnglish edition, Moto and Ted decided to use some material from theJapanese edition and combine the content with new selections. They
eventually decided to publish some traditional literature from classic
authors like Ryunosuke Akutagawa and Franz Kafka. In the newissue, they published an English translation by Jay Rubin of a Nohplay from the 15th century. And they also include American writers in
the English edition. So the Japanese MONKEY and the English
MONKEY are related but not exactly the same. They each containoriginal material and are slightly different from each other. Of course,

the Japanese MONKEY is published three times each year, and theEnglish version is published just once a year.
JS: So the Japanese MONKEY was published before

the English MONKEY in 2008?

Kelts: Yes. The original publication was called Monkey Business. But
when Moto changed publishers here in Japan, he could not use thesame title. So he made it just MONKEY.

Selecting the Content
JS: What is the role of your editorial team in choosing

the content of the magazine? Do you follow a policy?

Kelts: We don’t have a formal or written policy. Most of the content
is chosen by Moto, Ted and Meg Taylor, the managing editor.
Selection of the content is based on their tastes – what they reallylike. And the second level of decision is probably made by thetranslators, because Moto, Ted and Meg get a team of really greattranslators together. Trust between them and a translator develops
when the translator says that he or she is really interested intranslating a particular story or poem. For example, the Noh play wastranslated by Rubin, a former Harvard professor. He has also been atranslator of Haruki Murakami’s writing for many years. Then someof the English language material is by American writers whose work
Moto translates into Japanese. In the English language MONKEY, hesometimes publishes their original work in English.

Commonalities Between Japan & America
JS: You talked about some sort of commonalities

growing between contemporary Japanese literature
and American literature. Do you think that
globalization is a cause of the growing commonality
between Japan and America?

Kelts: Of course, especially with the rise of the Internet. Now you can
get our magazine MONKEY in the print, paper, PDF and eBook or
Kindle versions. It’s much easier for a global audience to access
Japanese literary writing. And of course, there is a great interest in
women’s voices and stories written by women. I think that’s true allover the world. Women writers in Europe and in America are also
being listened to and being read much more avidly now.
However, I think that contemporary American literature andJapanese literature do have some very important differences. I feel alot of American literature is very much about identity andrepresentation. As you know, the US has a very diverse population. So
there is a lot of interest in the personal stories of black writers or theJapan SPOTLIGHT • May / June 2021

63

personal stories of gay writers and Latino writers – different ethnic
voices or ethnic groups. Japan is comparatively much moremonoethnic. I think Japanese writers are exploring the kind of surreal
world that we live in – the kind of imaginative, fantastical world of ourexistence today. I think American writers today are writing more
realistic stories about their ethnic identity. Mieko Kawakami has apowerful story in Monkey Business from the perspective of theafterlife. Another wonderful writer in MONKEY is Aoko Matsuda. She
has written a great book about female ghosts from Japanese history.
Again, I think American writers are much more into writing about
realism right now.

Japanese Women Writers
JS: As you said earlier, today’s Japanese literature

seems to be led by talented women writers. Most of
the distinguished prizes have been given to women
writers. What do you think about these women
writers? Are they good at describing their imaginative
worlds?

Kelts: A couple factors are at work. One factor is that in today’s
Japanese society in general, women are still not in many positions of
power in corporations or the government. Of course, more women
are working today. But not many women occupy big positions – CEOor president. And because Japanese women are generally not in thecenter of society, they often have a unique and fresh perspective on
Japanese culture. For a writer, being an outsider can be a very goodthing, as the writer can carefully observe the system and describe itin his or her writing. For example, Sayaka Murata has a very
successful novel about life in a Japanese convenience store. The
novel is interesting because Murata looks at the Japanese retail andmarketing culture from the perspective of a young woman. I thinkshe has a unique female perspective on that world. But also womenin Japan are tending to get married less and having fewer children.
So, that could mean that Japanese women have more time to readand to write fiction and poetry.
This situation is not unique to Japan, of course. South Korea also
has a very low birth rate. The birth rate is low for native-born US
nationals as well. Many countries in Europe have very low birth rates. I
think, around the world, there are generations of women who now
have the time and energy to create and consume literature.
JS: Your views on Japanese women writers reminded

me of Ichiyo Higuchi of the Meiji Era. I learned fromone of your online programs that Mieko Kawakami, adistinguished writer, was deeply influenced by her.
Higuchi is one of the most important writers in thehistory of Japanese literature. She describes the

64 Japan SPOTLIGHT • May / June 2021

difficult times of the Meiji Era so well. Many writersconsider that period as the idea of rising Japan, but
Higuchi did not. She observes reality objectively andwith some irony. I guess an outsider’s view is very
important for literature. I also think that lonelinesshas been a good writing topic. Do you think today’s
talented Japanese women writers also represent akind of solitude or loneliness against the backdrop of
globalization?
Kelts: I completely agree with you. We can go back to Haruki
Murakami. His characters usually don’t have much family connection– maybe no family at all. They often experience divorce or broken
relationships. Murakami writes about solitude very well. What you
said about Higuchi is revealing. I find women writers’ ability to lookat the low level of culture quite fascinating. In Kawakami’s novel
Breasts and Eggs (Chichi to ran) the narrator talks a lot about
poverty, and characters deal with not having enough money andneeding to work extra hours at a hostess bar – and that’s kind of alow level of Japanese society. It’s quite different from Murakami’s
novels. Of course, Murakami’s characters sometimes visit the lowlevels of society, but they usually live a comfortable middle-class life.
They enjoy cooking; they enjoy wine; they can travel. But inKawakami’s books, the characters are often at quite a low level ofsociety without any illusions. That’s a very interesting point ofcontrast between Murakami and Kawakami.

New Authors & Literature
JS: In today’s world, neither capitalism nor socialism

works well and inequality is increasing. Do you thinkthat the concerns and anxieties caused by these
problems and the new normal imposed by the Covid19 pandemic would create new authors and literature
all over the world?

Kelts: It is true that neither capitalism nor socialism works well intoday’s world. There seems to be confusion about systems andideologies, which causes anxiety. I think these conditions might help
to generate a new kind of literature. Also, people may be feeling lessand less secure on social media. The Internet is a very public space
today. People are constantly communicating and posting theirthoughts, ideas and photographs. They can be constantly creating
public stories. But I think literature is usually best at looking at the
inner world – our inner lives, our imagination, our personal space. If
people become less trusting of social media, they may turn more
towards the interior world of writing. I hope this is happening
because we as human beings suffer when everything is public. We
need private space. We need space to dream and imagine, and that’swhere literature is the best. Movies are very public and so is
television. You watch these things with other people. When you reada book, it’s just you. It’s a very personal experience. I think people
may want that again in the future.

English Translation of Japanese Literature
JS: As you mentioned, the English translation ofJapanese literature has improved quite a bit. What
has led to this improvement?

Kelts: Like I said earlier, manga and anime enjoyed huge popularity
in the US and Europe. Generations of Americans, Europeans andother English-language populations fell in love with manga andanime – Japanese pop culture. When they got older, they wanted toread the original or they wanted to even write the original. I thinksome of those “Pokemon” kids are now 35 to 40 years old and theywant to translate. They really love the Japanese language. It’s not the
only factor, of course, but one theory of mine is that the popularity ofJapanese pop culture has helped to improve the quality oftranslation.
JS: I noticed the good quality of the Japanese

language of American literature translations. On theside of Japanese translators, there is some
improvement. Prof. Shibata seems to be the main
force behind this. There may be other Japanesepeople too involved in translating American literature.
Do you know anything about them?

Kelts: That’s a difficult question for me to answer. I’m happy to hear
your opinion about translation. That’s good news, but I don’t think
I’m qualified to answer this question. Moto would be better for that.

Watakushi Shosetsu
JS: So your favorite Japanese author is Haruki

Murakami. Is that so?

Kelts: I like many other writers. I really like Natsume Soseki, and I
am very fond of Kenji Nakagami. I think his writing is really originaland very energetic and sensual. Yoko Ogawa is masterful, and I
re-read Junichiro Tanizaki's In Praise of Shadows every few years. I
have always liked Kobo Abe, too. He had a great outsider perspective
on Japanese society and the world. Actually, I like many Japanesewriters.
JS: I am curious about the nature of literature in

Japan. You may have heard the Japanese term

watakushi shosetsu or I-Novel. I think the long
tradition of Japanese literature is nothing but a“private story”. But now Japanese novels have a very
close relation with society. What is your take on thismatter?
Kelts: What you said is definitely true. I think that part of it is Japan’s
growing prominence in the world, especially after World War II. With
modernization, Western cultural influences and a world-beating
economy, Japanese awareness of the world and their society in theworld naturally expanded. Another factor, again, may be the growing
voices of women in society and as writers. It’s kind of a stereotype –some say that women tend to be better social citizens because they
can have children. Because women can have children, they are more
realistically engaged with the world, whereas men, especially in thepast, had the freedom to just go off by themselves and go to aryokan and write a very personal novel. In general, women tend tolive more in the day-to-day society. Certainly, women who areparents do. If a woman in Japan is a mother, she is usually dealing
with a lot of societal groups, parents’ associations and school
regulations. So I think there may be some reason why Japanese
literature written by women is more engaged with society at large.
That’s just my theory.

Cultural Exchange in Asia
JS: Do you think that the type of cultural exchangethat takes place in MONKEY – mutual translation of
two languages – can be applied to other languages
and literatures, such as Indian and Japanese?

Kelts: I wish there were more cultural exchange among Asian
countries. With MONKEY, we have done events in Indonesia andSingapore. We have always had great audiences in Southeast Asia.
We also went to the Philippines with MONKEY to introduce Japanese
literature. I think those areas of Asia are very hungry for other Asianstories. They see Japan as a kind of cultural leader in Asia. They arevery enthusiastic about Japanese art and literature. So I think there isa great opportunity for Asian nations to exchange culture, media andart, but it’s not happening enough right now. I hope there will bemany more opportunities for cultural exchange in the future.

Written with the cooperation of Rajesh Williams who is a professional editor
and a writer with a background in instructional design, technical writing,technical editing, and teaching.

Japan SPOTLIGHT • May / June 2021

65

History of Relations of Asian Countries

Hariprabha Takeda’s Diary – an Indian
Woman’s Observations of Taisho & Meiji Japan
By Mukesh Williams

Author Mukesh Williams

The diary of Hariprabha Basu Mallik (1890-1972) called
Bangomohilar Japan Jatra or A Bengali Woman’s Journey to Japan,
published by her sister Kumari Santiprabha Mallik in November 1915
in Dacca, portrays Japanese family and social life during the Taisho
and early Meiji eras. In 1907, Hariprabha married a Japanese
entrepreneur Uemon Takeda in Dacca, and convinced him to visit his
home in Shimamiya, Kochino, Aichi Prefecture after nine years ofabsence. Uemon’s parents had given up on their son thinking that hehad died in British India. So when he returned to Japan in November
1912 with his “fair-complexioned” foreign wife they were delighted.
It was great news for the community; the local newspaper publishedtheir marriage and arrival thus: “Mr. Takeda has married the daughterof a certain gentleman in India and after several years has returned
to his own country. Happiness is expressed through his eyes...”
The small village community was relieved that Uemon was happy
with his wife. A hundred years ago the Japanese had seen few
foreigners and few foreigners had seen Japan. A few Bengali women
had travelled to Europe with their rich husbands but Japan remained
a mystery to most. Professor Swapan Prasanna Roy believes that
Hariprabha’s travel to Japan was both a “reckless adventure”, anincitement of Brahmo Samaj’s “women’s emancipation” culture.
Hariprabha and her family were Brahmo Samajist. The Brahmo
Samaj was a reformist movement within Hinduism and advocatedequality of caste, creed and religion. The movement was responsible
to a large extent in creating modern India. When Hariprabha’s diary
Photo: Somdatta Mandal

Photo: Somdatta Mandal

was published it created great “excitement among the women of
Calcutta” who saw her experience as an opening of new horizons. In
1915 the Indian revolutionary, Rash Behari Bose, fled to Japan. It
was only four years after Hariprabha’s visit that Rabindranath Tagore
visited Japan for the first time in 1916.

A New Face in Japan’s Rural Community
In Japan Hariprabha was a strange new face in her husband’svillage community. Many people came to see her foreignness.
Though she could not understand or speak the Japanese language
and had to take the help of her husband to interpret everything, herin-laws, delighted to see their son return after nearly a decade,treated his wife with great love and care. Her mother-in-law who was
60-plus did not allow Hariprabha to wash clothes, cook food or do
any household chores. In order to keep her busy, Hariprabha was
asked to repair kimonos and take care of local children for shortdurations. The village society was extra nice to her, wanting to meet
her and listen to her stories. The magic of the mysterious foreigner
added to her attraction.
Hariprabha stayed in Japan for four months with her husband
experiencing family life at close quarters. Her simplemindedness andpurity of intention created a perceptive prose in her diary. By the time
she started her journey back to India on April 12, 1913 she had
captured the essence of Japanese middle-class life. She returned to
Dacca on May 8, 1913 after 25 days of travel. In these four months
she basked in the “love and attention of everyone”, jotting down her
experiences. She would return to Japan two more times.

Brahmo Samaj Heritage

Hariprabha Takeda

Uemon Takeda

50 Japan SPOTLIGHT • September / October 2021

Hariprabha never intended to write for publication but as a Brahmo
Samajist felt it was her duty to write about her life. Also the egalitarianethos that Brahmo Samaj promoted made it easy for her to describe aforeign society with alacrity. Somdatta Mandal feels that “Brahmo
Samaj encouraged such cross-cultural encounters so early in thetwentieth century.” Her parents denounced caste and campaigned forthe downtrodden by running an orphanage called “Matri Niketan” intheir own home in Dacca. When Hariprabha proposed to her youngest
sister Santiprabha the idea of marrying Toshan, the younger brotherhttps://www.jef.or.jp/journal/

of Uemon, she rejected it. But Hariprabha imbibed the ideas ofBrahmo Samaj quite sincerely. She followed their example even when
it caused her great misery. Towards the end of her life she, along withher husband Uemon, went and settled down with her sister Ashrubala
Dasgupta who was a doctor in Jalpaiguri in North Bengal. Due toacute depression and ill-health, Uemon soon passed away.
Hariprabha went on living there till her sister’s death in 1970 after
which she came down to Calcutta to spend the last couple of years
with her nephew and his wife. In Jalpaiguri she had adopted a teenage
girl who split her skull and ran away with all her belongings. On theverge of death, she was restored to health by her sister. In her Japan
experiences she mentions a Brahmo prayer meeting called Brahmo
Upasana at the residence of an expatriate Indian.

A Keen Observer
Many Indian bureaucrats and businessmen have written about
Japanese family life, economic dealings and food shortage during
the war years. But Hariprabha’s diary carries picture-bookobservations of Japanese homes, gardens, hospitality, food, city
architecture, village life, child rearing, girl’s education, cooking, dailyliving, women’s hairstyles, kimonos, newspaper reading habits,
bathing, washing hair, makeup and curiosity about foreigners. The
early entries are short and carry snippets of daily events. But
towards the end the discussion becomes more complex and lengthy,
covering many aspects of Japanese life such as winter clothing, fire
safety, kimono, footwear, rice preparation, respect for work, parttime jobs, position of women and marriage rituals.
Hariprabha keenly observed the social life of Japan especially the
woman’s position – health care, domestic work, marriage and childrearing. The Bengali journal Bangadarshan brought out two articles
by her. The first one was called Japane Santan Palon o Narisiksha orChild Rearing and Women’s Education in Japan and the second
Japaner Nari or Women in Japan. Both bring out the themes ofwomen’s position in Japan. Later Manjushree Sinha compiled thesewritings under the title Bangomohilar Japan Jatra o Onannyo
Rachana (2009).

Her Diary
Hariprabha’s diary of 66 pages packs a lot of detail about her
feelings about her river and sea voyages. She has a literary andreligious bent of mind as she evokes metaphors of the sea anddivinity through her descriptions and religious songs. Her journeytakes her through Rangoon, Penang, Singapore, Hong Kong,
Shanghai to Port Moji in Kitakyushu. She heaves a sigh of relief
having arrived in Japan. From here she travels to Kobe and isfascinated by the exquisite wooden architecture of the hotel where
she stays. When they reached the Kobe Customs House to get entry
permission she notices the streets eroded by the rain: “The roads inthis country are not good. They do not have pavements. The peopleof the country wear a kind of shoe called ‘bugari’ which helps themto walk in rain and snow.” She notices the houses are made of woodand inside them “everything was spick and span.” She is fascinatedby a girl’s school which trains its students to become “dignified
citizens” through the study of the sciences, “physical training,cookery, laundry work, gardening, knitting, music and English”. She
is impressed by the way the geisha ties the kimono and the coiffure
with pins and flowers. She points out that women put their “neck on
a wooden block” while they sleep in order to keep their hair-do intact
for days. Hariprabha is impressed by Japanese women who work
alongside men: “There are no restrictions for women, they work
together with men, move around; there is no restriction anywhere.”
They wake up early and do all the household chores. The marriage
custom of drinking sake, dressing in expensive silk and going to thein-laws house in a rickshaw are something to observe. She also
notices that the Japanese mother is the center of the family.
Hariprabha has an eye for detail. She observes the different
traditions from sitting on tatami with legs tucked behind to thedelicacy of the tea ceremony and the careful arrangement of the foodat her in-laws house. She also notices the initial wariness of her
in-laws and later generosity as they become familiar with her
personality. She does not forget to mention the obento box
containing steamed rice and vegetables for 4 to 8 annas. Her diary ismore of an emotional autobiography free from egoistic evaluation ofsocial norms. Her observation of rural life in Shimamiya and city life
in Nagoya, Ise, Osaka, Tokyo, Kyoto and Nikko during her visit to her
in-laws or sasurbari 100 years ago are quite revealing. She wasextremely fortunate to travel to Japan in the aftermath of theeuphoric victory in the Russo-Japanese War of 1904-5. Through herdiary entries we come to see a slow-moving Japan getting
modernized but still carrying the legacy of the past in its manners,
transport and architecture. Usually she avoids referring to thepolitical life of Japan as she did not want any problem with the statusquo. However, occasionally a few details about politics do creep in.
As Hariprabha writes about Tokyo, Kyoto, Nikko and Osaka, thereader can experience the ambience of these cities as they were a
century ago. She notices “deep mud” on the roads with “horsecarriages” passing by at long intervals. She is impressed by thetrams and trains of Tokyo but does not find the metropolis as“attractive and gorgeous” as reputed to be. She is quite impressedby the park in central Tokyo close to the Emperor’s palace with its
well-planned lake, fountains and flowering plants. Hariprabha finds
Kyoto as a city of “pilgrimage” shaped by its temples with wide
verandahs for meditation and aesthetic pleasure. Osaka lives up to its
reputation as a commercial center with its “factories and business”.

Translations from Bengali to English
There is a mixture of formal and colloquial styles in her diary
which shows that since the manuscript was not intended for
publication, revisions were not made to standardize it. Somdatta
Japan SPOTLIGHT • September / October 2021

51

Photo: Author

Photo: Somdatta Mandal

Mandal has brought out the mixing of styles cleverly in hertranslation from Bengali into English, called The Journey of a Bengali
Woman in Japan (2019). Her edition is exceptional in the sense thatit includes two other essays of Hariprabha – In War-Torn Japan andChild Rearing and Women’s Education in Japan. The edition also
carries seven appendices that contain rare essays, reminiscences,
articles and details of a documentary film Japani Bodhu (2012) in
one text. Reading Mandal’s English translation of the diary together
with rich secondary sources makes both the worlds of Taisho Japanand British India comes alive like a series of picture sketches.
Mandal came across Hariprabha during her work on “colonial
women’s travel narratives”. Monzurul Haq had brought “the text tolight” through its publication in 1999. He had managed to retrieve
the manuscript from the rare book section of the India Office Library
in London. Mandal met Prof. Roy of Delhi University who published asecond edition in 2007 and “inspired” her to translate the text. Then
Mandal found a third edition published in Bengali in 2009 by
Manjushree Sinha. “So as you go to the later editions more and more
information about her is added.” Inspired by the Takeda story, theBangladeshi film director Tanvir Mokammel made a documentary
called The Japanese Wife in 2012. In 2014 Mandal completed
translating the book. But publishers delayed, and the book changed
hands. It was finally published by Jadavpur University Press in 2019.
Over the decades a new interest has emerged in women’s writing
and travelogues. This has brought Bengali scholars from Monzurul
Haq and Prof. Roy to Manjushree Sinha and Somdatta Mandal tobuild upon the scholarship of previous editors. Each subsequent
Bengali edition of Hariprabha’s diary has not only included
Hariprabha’s original script but added to it details of her life throughinterviews with Takeda’s surviving nephew and his wife. Mandal
accumulated all the essential relevant materials from the three
Bengali editions of the text (1999, 2007, and 2009) and translated
this important diary into English for the first time for the benefit of alarger worldwide readership. In smoothness of style and accuracy
she brings to the Takeda translation decades of experience as aprofessor of English at Visva-Bharati University, Santiniketan, andher ability as a native Bengali scholar.
Photo: Somdatta Mandal

Photo: Somdatta Mandal

Bengali edition of the book, 1999

The Japanese Wife (Tanvir Mokammel)DVD

52 Japan SPOTLIGHT • September / October 2021

Translator Somdatta Mandal

The Journey of a Bengali
Woman to Japan, translated by
Somdatta Mandal, 2019

Their Meeting & Marriage
Hariprabha met Uemon in Dacca. She was 22 and he was 37.
Uemon like many other young men had travelled to British India in“search of a living”. He travelled to Bengal and found a job in the
Bulbul soap factory in Dacca as a technical overseer. The company
was owned by Hariprabha’s father Sashibhushan Basu Mallick.
Translator Monzurul Huq suggests that as a Japanese immigrant to
India Uemon must have felt bored not being able to meet people. The
desire to socialize must have forced him to attend Brahmo Samajmeetings. It is at one of these meetings that Uemon met Hariprabha
and courted her. Hariprabha’s mother Nagendrabala realized Uemon’s
entrepreneurial character and persuaded her husband to allow theireldest daughter marry Uemon. Nagendrabala’s assessment of
Uemon’s character proved correct as he started his own
manufacturing company and helped his in-laws in the philanthropic
work they were engaged in. He was joined by his brother Toshan. But
for nine years Uemon did not communicate with his parents. In the
essay “The Japan that Hariprabha Saw” Kazuhiro Watanabe has theanswer. In the year 1912 when Hariprabha came with her husband to
Japan, the Emperor Mutsuhito died ending the long Meiji Era.
Watanabe conjectures that perhaps Uemon was arranging money fora trip back to his country. But more than that Watanabe believes the“death of the emperor made Takeda-san feel that a phase ofJapanese society had come to an end.” Now that Uemon was a“successful” businessman and married to a Bengali lady, he wanted
to see the “new Japan” and show his “new self” to his relatives. Thisis possibly a good explanation.
Hariprabha was an attractive girl when she got married. Both her
behavior and her looks attracted her in-laws and those she met in
Japan. After their return from Japan, having no such family to callher own, she and her husband came to live with her sister Ashrubala
in Jalpaiguri. Her nephew’s wife Manju Dasgupta met her in 1963
when she was 73 years old and a widow. Hariprabha was still acharming person with lots of practical advice. Manju found thatthough Hariprabha’s hair had turned silver due to old age, she still
possessed those “exquisite” eyes and a “very sharp gaze”. On one of

Photo: Somdatta Mandal

Photo: Somdatta Mandal

her visits to Japan
she also had a“golden tooth” fixedwhich “sparkled”
when she smiled.

Reasons for
Her Visit toJapan
The reasons for
Hariprabha (left) with second sister Ashrubala Dasgupta
Hariprabha’s visit toJapan were many. She was curious to meet her in-laws and receive
their blessings. The idea of sangsar or that a married woman’s real
home was with her in-laws was not a practice followed by
Hariprabha. Being a Brahmo Samajist she had strong faith in the
power of the divine to shape her destiny. Perhaps she wanted to pay
obeisance: to the gods of her in-laws who were Jodo-shu Buddhist.
She also had a “secret dream” to visit Japan from the time of her
marriage. We may not know what this special dream was. Marrying
outside the caste and nationality a century ago was a “greatchallenge” to the “conservative decadent society of Bengal” observes
Prof. Roy. Hariprabha’s sisters did not share her ideas of aninternational marriage. Mandal explains that during the colonial
period the “Bengali middle class traveled for pilgrimage, education or
marriage relocation. Women like Jnanadanandini Devi, andKrishnabhabini travelled with their husbands to the United Kingdom.
But travel to Japan was relatively unknown for women.”

Hariprabha and Subhash Chandra Bose

Surojit Dasgupta and his wife Manju. Her husband became deeply
depressed by Japan’s defeat in World War II. “So basically she went
with her husband in 1941 and returned in 1948. He was very sickand died soon after their return. No memorial. He suffered fromacute depression as he could not accept the defeat of Japan. He
would repeatedly regret about it aloud.” During her third stay she
wrote about the war and its impact on Japan in Japan Ravaged by
the War or Juddha Jarjarita Japan. She got connected to both theBoses who were in Japan – Subhas Chandra and Rash Behari. In
War-Torn Japan she tells us that on a late December morning she
had gone to Ogikubo to visit a Mr. Sahay. An air raid began in theafternoon and she returned with the help of a teenage chaperon to
her home at 10 o’clock at night. Hariprabha describes the houses“burnt to ashes” and everywhere there was “water, mud, ashes, andelectric wires”. She felt “terrified” witnessing the devastation.
According to Mandal, “her first trip was romantic but the second was
patriotic.”

Two More Visits to Japan
An Inspirational Wife
The Takedas revisited Japan two more times, once in 1924 andthen again in 1941. Her trip in 1924 was short but dates are notmentioned. The third trip in 1941 was the longest. Hostilities
between the United States and Japan were increasing. As part of therepatriation drive organized by the Japanese government, the couple
left Bombay on Nov. 2 in a Japanese ship with 1,200 Japanesenationals and reached Kobe on Nov. 21. Hariprabha chronicles both
the wars and the bombing of Pearl Harbor and cities of Hiroshima
and Nagasaki. She saw food shortages during the war and lived a lifeof penury as her husband fell sick. For some time, on the advice ofRash Behari Bose and with the direct encouragement from Subhas
Chandra Bose, she worked as a radio announcer of the secretbroadcast service of the Azad Hind Fauj or the Indian National Army.
Also some of her Indian friends like Rash Behari Bose, JusticeRadhabinode Pal and others helped her with her daily needs andperhaps gave her money to buy her passage back to Bengal. She
returned with her sick husband on board the British ship Eastern
Saga from Yokohama in 1948. A flood in 1968 spoilt all her
possessions. So she came to Calcutta after her sister’s death in 1970and spent the last two and a half years of her life with her nephew

A dutiful wife, war reporter, event chronicler and social reformer,
Hariprabha’s travel diary and other writings continue to inspire theBengali middle class in India. About seven and a half years of her
Japanese experience feeds into the Asian sense of pride created by
Okakura Tenshin and corroborated by Tagore. Tagore’s own writings
on Japan in Japan Jatri were a “poet’s vision of that country”
believes Watanabe, while Hariprabha delves deep within the heart ofthe common people. Hariprabha’s diary brings alive the process ofmodernization Japan was going through during the Taisho and Meiji
eras and the freedom struggle India was engaged in. Her diary is an
important addition to the female travelogue literature of the early
20th century.

Professor Mukesh Williams is advisor to the South Asia Research Center at
Soka University, visiting faculty at Keio University, consultant/news analyst for
the BBC World Service, St. Stephen’s College Alumni representative andAcademic Exchange Programs coordinator in Japan.

Japan SPOTLIGHT • September / October 2021

53

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