Annual Review 2020

Can We Turn Despair
into Hopewith the Pandemic?
14 articles have been selected for the Annual Review 2020 from the six issues of the past year.
#231
#232
#233
#234
#235
#236

May/June 2020 Issue
July/August 2020 Issue
September/October 2020 Issue
November/December 2020 Issue
January/February 2021 Issue
March/April 2021 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 30 years. His past
positions include Japan Country Manager for Tata Infotech and for
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 university visiting faculty. He is avolunteer 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 business
data.

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 2021)

Masahiro Morinaga
Director, Planning and Coordination Division, research Planning
Department, Institute of Developing Economies-JETRO

Currently, he is in charge of corporate management, research planningand public relations in Institute of Developing Economies (IDE-JETRO),
one of the largest public research institute in the field of social sciencesin Japan. He has experience working in China totally 7 years, inparticular, General Manager, Beijing Office of Japan Oil, Gas andMetals National Corporation (JOGMEC) (2014-2017), Director of IPR
Protection, Shanghai Office of Japan External Trade Organization(JETRO) (2006-2010).

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
Chair, Japan Financial AI Group

Graduating from India's top university, IIT, Sanjeev came to Japan
in 1996 and contributed to the formation of Mobileye, now a world
leading AI company. Subsequently working with Goldman Sachs,
Mizuho, PwC, UBS and as Chief Representative of Tata AssetManagement in Japan, he specializes in AI and finance industry. He
has been a visiting faculty at the University of Tokyo and an advisor
to Japan Railways, various Ministries and other organizations. 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
FY 2020 was the year of the pandemic. Throughout the whole year, uncertainty, anxiety and despair havebeen dominant in the world due to the ceaseless expansion of Covid-19. Social distancing to decrease direct
human contact as much as possible is at this moment the only solution for reducing infections from the virus.
Teleworking increased significantly and face-to-face human contact drastically declined. It was anopportunity to take full advantage of the IT revolution, but at the same time contradictory to the humaninstinct for socializing. Parties and social gatherings have been significantly restricted since the outbreak of
the pandemic. There seems, at first glance, to be much less close human contact and even relations among
friends seem to have been damaged.
With the number of daily infections and deaths, people are scared and anxious about the future. On Feb. 1,
2021, as I write this, vaccines are the only hope to reduce casualties. The pandemic’s impact on the economy
is also horrifying. Global GDP growth in 2020 was -4.4%, according to the IMF estimate in October 2020,
and with the exception of China all major nations recorded negative growth. With this deep negative impact
on jobs and business activities, in Japan suicides increased in 2020. In particular, restaurants, pubs and coffee
shops suffered from a deep fall in profits due to restrictions on their business hours as they were consideredprime venues of infection. Tourism was also considered another source of the spread of infection and tourism
businesses, hotels and inns also suffered declines due to restrictions on travel. Such developments andcontinuing uncertainty over the future have turned anxiety to despair for many people.
This is not the way to go in difficult situations. We must keep calm during crises and think about what todo. It is important to keep working and bravely and steadily carry out what each of us may think of as our
mission. This is the only way to beat the pandemic. Japan SPOTLIGHT continues to work on its mission
without being disturbed by scary statistics or uncertainty.
We have selected the following articles from the six issues of the past year as examples of the main pillarsof our work in FY 2020, examining the reality of the various impacts of the pandemic, such as on theeconomy and geopolitics. For FY 2021, we will change our focus to the future rather than the present andexamine the pandemic’s likely consequences ahead. This will include positive thoughts for the future, as we
believe human beings can transform despair into hope in the post Covid-19 era. We hope we will see fromthe next annual review for FY 2021 that the pandemic was a terrible disaster but proved to be an opportunity
for the world and Japan to achieve bold reforms and step into a new stage of civilization.
In the following, readers may find the seeds of hope in this annual review of 2020.
1. Issues on the Global Economy
1) Implications of the Pandemic for Capitalism, By Sir Paul Collier (March/April 2021 Issue #236, Cover
Story 2)
2) Expansion of PCR Testing Is the Key to an Exit Strategy, But Which Is More Important – Sensitivity

or Frequency of Tests? By Kazumasa Oguro (Nov./Dec. 2020 Issue #234, Cover Story 4)3) Interview with Dr. Yasuyuki Sawada, Chief Economist of the Asian Development Bank, Asia to Leada Global Economic Recovery in 2021 After the Pandemic Recession, By Japan SPOTLIGHT(Jan./Feb. 2021 Issue #235, Cover Story 2)4) What the Covid-19 Crisis Means for the WTO Trading System, By Kiichiro Fukasaku (July/Aug. 2020
Issue #232, Cover Story 9)5) Global Collective Action – the Case for Minimalist Strategies, By Jean Pisani-Ferry (July/Aug. 2020
Issue #232 Issue, Cover Story 6)
2. Issues on the Global Geopolitics
1) Global Risks & Opportunities Under the “With-Corona” Global Order, JEF-KRA the Fourth Global Risk
Symposium Online – an Introduction of Key Geopolitical Developments with COVID-19, By Komatsu
Research & Advisory (March/April 2021 Issue #236, Cover Story 1)
2) Interview with Matthew P. Goodman, Senior Vice President for Economics, Center for Strategic &International Studies, The Biden Administration’s New Foreign Policy a Key Geopolitical Question in
the Pandemic, By Japan SPOTLIGHT (March/April 2021 Issue #236, Cover Story 4)
3. Issues on Digital Technology
1) Interview with Dr. Kei Sakaguchi, Professor at Tokyo Institute of Technology, 5G – a Technology to
Realize a “Super Smart Society”, By Japan SPOTLIGHT (May/June 2020 Issue #231, Cover Story 1)
2) Interview with Taro Shimada, Corporate Senior Vice President & Chief Digital Officer of Toshiba
Corporation, President & CEO of Toshiba Digital Solutions Corporation, CEO & Representative
Director of Toshiba Data Corporation, Board Chairman of ifLink Open Community, CPS Technology
Creates a Society Sharing the Benefits of Big Data, By Japan SPOTLIGHT (May/June 2020 Issue#231, Cover Story 2)3) Role of Digital Education to Help Long-Term Growth Recover Under Covid-19, By Naoyuki Yoshino& Masaki Nakahigashi (Jan./Feb. 2021 Issue #235, Economists’ Views on the Global Economy)
4. Issues on Business Management
1) Interview with Dr. Gary Hamel, Co-author of the book Humanocracy, How Can We Revive
Organizations as Innovative as the People Inside Them? By Japan SPOTLIGHT (Nov./Dec. 2020
Issue #234, Cover Story 6)2) The Development of “Job Crafting” & Its Implications in the Workplace in Japan, By Nobutaka
Ishiyama (Sept./Oct. 2020 Issue #233, Recent Socioeconomic Issues 2)
5. Issues on Society
1) Redistributing Happiness: How Social Policies Shape Life Satisfaction (Part 1), By Hiroshi Ono &Kristen Schultz Lee (July/Aug. 2020 Issue #232, Special Article 3)2) Redistributing Happiness: How Social Policies Shape Life Satisfaction (Part 2), By Kristen Schultz
Lee & Hiroshi Ono (Sept./Oct. 2020 Issue #233, Recent Socioeconomic Issues 1)
Naoyuki Haraoka is editor-in-chief of Japan SPOTLIGHT & executive managing director of
the Japan Economic Foundation (JEF).

COVER STORY • 2

Implications of thePandemic for Capitalism

By Sir Paul Collier

Faced with the Covid-19 pandemic, neither Chinese autocracy nor
most of the Western democracies are emerging with much credit. To
understand why both systems have revealed severe inadequacies,
and what accounts for the exceptions, I draw on recent research thatis starting to reveal the characteristics that a successful societyneeds. They are cohesion, a capacity for wisdom and learning, andtrusted modest leadership. Covid has revealed why each of thesemattered, and in doing so showed why they matter more generally.

Social Cohesion
The first characteristic is a degree of social cohesion within acommunity. By social cohesion I mean a ready ability of the people
living together in a place to forge shared purposes, sharedunderstanding about how things work and don’t work, and sharedobligations among citizens. So defined, social cohesion isenormously important in building willing compliance at manydifferent levels. Most obviously, it is valuable at the political level: fordemocracy to work, its citizens need to be able to come together
around some common purpose, such as containing Covid, reachsome common understanding of how this is best achieved, such as“we all need to get vaccinated”, and then accept the implications at
the level of each individual: “I have a duty to get vaccinated.”
But it is also valuable at a smaller scale. A successful firm works
not as a nexus of contracts between individuals, but as a community.
The workforce rallies around some common purpose set by good
leadership – this is what Toyota managed to create when it
developed “quality circles” to produce fault-free cars. The common
purpose was linked to a common understanding of the problem –faults had to be spotted at the point on the production line where
they first occurred. This translated into individual actions – “faults
are treasures” to be spotted and reported instantly. Hence, they
implied an obligation on each worker to stay vigilant, but not toabuse their new power to stop the production line. Most obviously, a
successful family is a community in which those of its members in
the prime of life accept obligations to the young and the elderly.
Fortunately, humans naturally form communities: evolution has
equipped humans to be far more pro-social than any other mammal.
We are hard-wired to belong to communities because they are more
effective at achieving human goals than individuals in isolation.
Rousseau was the first philosopher to see the advantage of
co-operating at scale in a community: hunting solo we could only
https://www.jef.or.jp/journal/

Author Sir Paul Collier

catch rabbits, whereas hunting together we can catch stags. Within
them, we want to gain the good opinion of the other members
through some attribute. That attribute can be thought of as being “agood person”. What it means to be a good person will vary between
communities. In some, the characteristics which make being so
judged can be ranked.
For example, in a Viking community a good person was brave,strong, and brutal against the enemies of the group. In a modern
meritocracy such as a university department, a good person may
mean one who has high cognitive abilities and publishes a lot of
influential papers. In both of these superficially very different
communities, members were ranked: some people had higher status
than others. But in other communities, people are not ranked but
judged according to whether they meet a threshold, such as
respectability, kindness, or loyalty, which can be met by all its
members. Successful societies abound in such criteria, so thateveryone can potentially gain respect. That desire for the good
opinion of others is fundamental: by harnessing it to a common
purpose, the group can create willing compliance with actions thatare individually costly but collectively beneficial. This was needed
during Covid. The common purpose of containment required
everyone to avoid infecting their neighbors. Denmark could rapidly
reopen schools because everyone accepted that children must be
kept clear of older people. In contrast, in the United States theimmediate response to Covid was queues outside gun-shops: shootyour neighbor was not a viable strategy.
A community forges common purposes through dialogue.
Dialogue engages everyone: all members of the community canparticipate and co-own the outcome. It flows back and forth between
equals who aim to understand each other, in contrast to instructions
flowing down a hierarchy. An analogy is the game of ping-pong:participation implies mutual acceptance of its rules. The rules of
dialogue preclude abuse, and presume a mutual willingness tosearch for common ground. Even when it cannot be found, people
come to understand the validity of the other perspective, reflecting
their different life experiences. Dialogue usually takes the form of
narrative: it is the style that all of us have evolved to master. It is
inclusive, in contrast to deductive analytics and quantification, bothof which privilege skilled participants who may be drawn from a
distinctive part of the population with its own priorities.
Dialogues not only build common purposes. To achieve thosecommon purposes through coordinated action they need to build aJapan SPOTLIGHT • March / April 2021

11

common understanding of a situation, so that the community canforge a common strategy for action. They are necessary for
coordinated action, but not sufficient in themselves. The final step isa sense of common obligation. The rules for bestowing good opinion
are linked to the action required of each member. The key concept
here is “contributive justice” proposed by the celebrated Harvard
moral philosopher Michael Sandel (The Tyranny of Merit, 2020). By
this he means that fairness hinges on mutuality: everyone must
contribute what they can, and through this we gain the respect ofothers and self-respect. For people to be able to contribute, theyneed agency. They may contribute in multiple ways: throughparticipation in the dialogue that builds the purpose, throughbestowing good opinion, and most especially through actions that
conform with the strategy.
In the Western democracies, this need for social cohesion has
recently been questioned. Diversity has become highly valued, andmost especially the assertion and celebration of distinct minority
identities, and this is sometimes regarded as incompatible withsocial cohesion. That same fear of incompatibility is manifest in
China and India, where the solution has been to suppress minority
identities so as to strengthen cohesion. But I think that both these
responses misunderstand the relationship between social cohesion
and diversity: properly understood, there need be no tension
between them. People can hold multiple identities. A society can be amosaic of many groups, each with its own distinct identity, as longas all its members share some common overarching sense of ashared identity. Thus, at the level of a polity, people can have strong
regional and class identities as long as these do not conflict with acommon sense of belonging to the whole. Diversity is evencompatible with such sub-national identities being mildly
oppositional: “I am a Scot and we have long fought the English”; “Iam a Yorkshireman and we have long struggled against the
Lancastrians.” They only become damaging if defined in opposition
to the whole: “I am a Scot and therefore not British.” But who should
be included in the whole?
The answer was provided by Nobel Laureate Eleanor Ostrom(Governing the Commons, 1990). The first of her principles by which
a community is able to overcome the tragedy of the commons isclarity of boundedness. Everyone in the community must know andaccept that they themselves are a member, and know the criteria bywhich all others are included: the rules of membership must be
common knowledge. As with common purpose, common
12 Japan SPOTLIGHT • March / April 2021

understanding and common obligations, this common knowledge ofthe rules of membership can be built through dialogue. For practical
purposes, the most realistic rules of membership for a society arethose of citizenship.
Some societies were able to conduct a dialogue about Covid. In
others Covid was instantly contaminated by prior political divisions
and debate was abusive and polarizing, unable to build common
purpose.

Wisdom & Learning
In addition to social cohesion, a successful society needs wisdom.
Dialogue is an unguided missile that can lead a community into follyor trap a community in dysfunction. Plato thought that wisdom wasincompatible with democratic inclusion: decisions must be entrusted
to “guardian philosophers”. But this proposition is a dangerous culde-sac. In denying the agency of dialogue to most people, it divides
the community into “insiders” who set purposes and strategy, and“outsiders” who are expected to perform obligations to which they
have not agreed. This, I think, is a fundamental breach ofcontributive justice. Worse, the role of being a Platonic Guardian
attracts people who are over-confident of their abilities and arationale for why their own values differ from those of the majority:
they are wiser than others.
So, if everyone must participate in dialogue, but wisdom is anacquired rather than an innate attribute, what can be done? We knowthat knowledge comes in two forms: expert knowledge is what
academics acquire through research, and share through teaching;tacit knowledge is acquired through “learning by doing” in a context.
We have confused wisdom with expertise: wise decisions need to
combine these different types of knowledge, held by different typesof people. Wisdom evidently matters most when decisions are
difficult, which arises from complexity. But the more complex is theissue, the higher is the ratio of tacit knowledge to expert knowledge
involved in it (Paul Nightingale, “Tacit Knowledge and Engineering
Design”, in Anthonie Meijers (ed.) Handbook of the Philosophy of
Science: Philosophy of Technology and Engineering Sciences, NorthHolland, 2009). Hence, drawing on tacit knowledge is the critical stepin wise decision-taking. On complex matters, expert knowledge
without tacit knowledge is dangerous: the confidence of experts
becomes a menace. Fortunately, expert knowledge is designed to beshared – it can be taught. In contrast, tacit knowledge is very hard toshare – you learn it by doing it, and it is very particular to context.
So, the synthesis on which wise decisions depend is more easily
achieved by sharing pertinent expert knowledge with practitioners,
than providing experts with the vast mass of context-specificknowledge of experience. Hence the people who need agency forcomplex decisions are expert-informed practitioners, not experts.
The knowledge that matters changes in response to problems: werepeatedly need to adapt to new situations that we do not fully
understand. And so a successful community is one that iscontinuously adapting, experimenting and learning from trial-anderror. By devolving agency around a new common purpose, many
experiments can be conducted in parallel. Within a well-functioning
community, once an experiment works it spreads fast: people learn
from each other because they trust each other.
Covid was a new problem. Some societies learnt from the firstsocieties to be infected, as did New Zealand, or experimented withdifferent approaches by devolving agency to local communities, as
did Denmark. In others, exemplified by Britain, experts pretended
that they knew what to do based purely on their own modelling, andso decision-taking was highly centralized. In contrast to Denmarkand New Zealand, Britain ended up with appallingly high excess
mortality.

Leadership in a Hierarchy
Although both wisdom and adaptability are fostered by devolving
agency across the population, there is still an important role for
hierarchy and leadership. Many purposes depend upon coordination
at scale and although small communities happen naturally, large
ones have to be built by leadership. Hierarchy is necessary but
dangerous: it tempts leaders to use their power for their own
individual purposes. Bad intentions, arrogance, and charismatic
grandiosity all need to be prevented from usurping community
before hierarchy can safely be allowed into a group. Among all othermammals the only form of leadership is dominance. Bothdemocracies and autocracies can stumble into such leaders: Donald
Trump in the US, Xi Jinping in China. They centralize decisions rather
than devolve them, undermining both wisdom and adaptability.
Faced with such leaders, the advantage of democracy over autocracyis that the agency conferred by the vote tends to remove them, as
has happened in the US.
But humans have evolved a second type of leader who wins therespect of the group through sacrificing self-interest for the common
good. Joseph Henrich (The Secret of Our Success, 2016) notes thatin contrast to dominant leaders pro-social ones commonly use selfdeprecating humor. Such leaders win trust and so can becommunicators-in-chief. With this power they can swiftly reset
common purposes, strategies, and obligations.
Such leaders are able to reset not only purposes and strategy but
the very architecture of the decision process so as to suit thesituation. At times of uncertainty, the key priority is that experiments
should proliferate through devolved agency. But at times when thesituation requires a solution that is evident but demands substantial
self-sacrifice by everyone, trusted leadership can itself take thedecision. For example, in response to Covid a retail business mayneed to reduce its number of branches and expand its online service.
Decisions as to which branch to close cannot be devolved tobranches, but the leader may be trusted to take fair decisions onbehalf of everyone.
This is why Covid has produced such dramatic differences
between societies. In the US, Trump centralized decisions in thepresidency; in Britain, the civil service centralized decisions inWhitehall; in China, local officials in Wuhan were so scared of Xi thatthey suppressed information about Covid until it was out of control.
Dominance belatedly enabled containment, but too late to prevent a
global pandemic. In contrast, the leaders of Singapore, Denmark and
New Zealand had all built widespread trust among their citizens. In
Singapore this was used for swift and decisive leadership without
arousing dissent; in Denmark and New Zealand, leaders did not claim
expertise, but placed responsibility on everyone – “a team of fivemillion” was the slogan of New Zealand’s prime minister.

Conclusion
The implication of Covid is that capitalism can work well, but only
in a certain type of society. It is one in which agency has been
devolved across the population; in which despite differences, thesociety is cohesive because people accept a shared identity; in which
decision-taking is designed for wisdom and adaptability; and inwhich leadership is modest and widely trusted. And so the lessons of
Covid indeed have implications for both the conduct of businesses
and the design of political systems.
The genius of capitalism comes not from harnessing the primitive
instinct of greed that we share with all other mammals, but from ourJapan SPOTLIGHT • March / April 202113

unique human evolved characteristics of being able to bond into acommunity, to innovate, and to learn from each other. A successful
and enduring firm is a purposive community – a network of
relationships within and between teams that cooperate to achieve its
purposes. It is not merely a nexus of incentivized contracts between
individuals. A successful leader of a firm builds trust with
employees, suppliers and customers and through these, also withbanks, bondholders and shareholders. These relationships become
the key assets of the firm, encapsulated by all the connotations of its
brand. Being trusted, a leader can rapidly get a workforce andpartner companies to coordinate around new purposes, and new
problems, as has proved to be crucial during Covid.
Some firms have taken the short-term option of sacrificing theirworkforce and their suppliers, to maximize profits for shareholders.
Others have recognized that this moment of supreme stress is an
opportunity to demonstrate loyalties and thereby to invest in them.
Such a network of enduring relationships is the fundamental asset ofa successful company, since it cannot readily be threatened bycompetitors. It therefore makes the firm resilient to whatever shocks
might occur, and this is itself a source of financial confidence.
A successful and enduring economy harnesses this potential ofindividual firms on a larger scale. Through competing in a market,
firms are constantly subject to checks and balances that impose a
degree of discipline and pragmatism. Despite this discipline, theconsiderable differences in productivity between firms are
remarkably persistent. Hence, whatever is explaining them cannot beeasily imitated. Evidently, it cannot simply be a matter of hiring asmart CEO, or getting the latest technology. The persistent difference
between good performance and poor performance is that asset oftrusting relationships which cannot be transferred. Indeed,successful firms do not just compete with others, they cooperatewith them in enduring relationships, as exemplified by the valuechains and business clusters which dominate world trade. A good
current example within Europe is Airbus, which is an enduring
relationship between a group of European firms that challenged
Boeing, in much the same way that a generation ago enabled Toyota
to challenge General Motors. Disastrously, Boeing took the shortterm opportunistic route to profits, undermining the regulation ofsafety through effective lobbying. Once its new planes started tocrash, its own employees blew the whistle on its reckless strategy. It
now faces a devastating loss of consumer confidence, being forced
into distressed sales of its planes to bottom-of-the-market airlines.
14 Japan SPOTLIGHT • March / April 2021

A successful society applies these same principles at a yet larger
scale, integrating economic relationships into larger social purposes.
At any one time, around half the population is economically inactive– children and students, the retired, the sick, and the unemployed.
Most of us move through a life-cycle of all these phases, and so theeconomy has to meet these wider needs. This is the foremost task ofpublic policy. But the levels of public policy are so powerful that they
carry dangers of abuse if captured either by leaders or sub-groups of
citizens. At its best, democracy within the context of checks andbalances implied by the rule of law is superior to autocracy because
it guards against these abuses. Autocracies can sometimes work
well for a while, but being prone to abuses they suffer much wider
variations in performance than democracies. At some stage they
implode into dysfunction. Indeed, there is no successful example inhuman history of an autocracy that has sustained a good standard ofliving for its citizens. But democracy itself only works if it is built onsocial cohesion, the integration of practical and expert knowledge
that enables wisdom, the devolved agency that permits innovationand learning, and the self-sacrificing leadership that enables
common purposes to evolve. In some societies, capitalism hasderailed because these deeper conditions for a healthy society havederailed.
Nor are the goals of a society reducible merely to economic wants
and needs. A society has a culture, and many sub-cultures, which
are vehicles through which its citizens find meaning in their lives.
Again, the advantage of the devolved agency which is the corestrength of democracy is that through freedom of association it
enables the dynamism and vitality without which a society ossifies.
The supreme autocracy of Louis XIV of France devised a routine so
enjoyable that it was designated “The Perfect Day”. That routine wasrepeated daily for 150 years. Increasingly detached from the lives ofordinary citizens, this proved to be the prelude to a violent andcataclysmic revolution.

Sir Paul Collier is the author of The Future of Capitalism (2018), and Greed is
Dead (with John Kay, 2020)

COVER STORY • 4Expansion of PCR Testing Is the Key to an
Exit Strategy, But Which Is More Important– Sensitivity or Frequency of Tests?

By Kazumasa Oguro

Awareness of the Issue
The spread of Covid-19 is having a grave impact on our society. For
example, in the Cabinet Office’s “Quarterly Estimates of Jan.-March
2020 GDP (Second Preliminary)” the real GDP growth rate for theperiod was an annual negative 2.2% (year-on-year), but the average
forecast of 12 private think-tanks puts the estimated growth rate for
the April-June period at an annual negative 27% (year-on-year), andthe Japanese economy looks set to sink to its worst level since the endof World War II.
On May 25, 2020, the Japanese government lifted the State ofEmergency Declaration on the spread of Covid-19 across Japan, butwith the reopening of social activities and economic activities,
infections are once again spreading, especially around Tokyo.
Depending on the spread of infections, the government may once
again issue restrictions on going out, or ask for voluntary restraint on
business activities, but in this instance the economic loss will beimmeasurable and the number of small and medium enterprises(SMEs) going bankrupt will likely rise sharply. In fact, the 2020 versionof the White Paper on Small and Medium Enterprises (approved by the
Cabinet on April 20, 2020) points to the “likelihood of concerns overfinancing difficulties in the accommodation and food service industry
deepening for the next six months.” According to the Financial
Statements Statistics of Corporations by Industry (Ministry of Finance)
for Fiscal 2018, cash deposits held by SMEs with capital of 10 million
yen to 50 million yen only amount to around three months’ worth ofoperating costs.
Is there a way to continue near-normal social and economic
activities by utilizing the knowledge of economics? Addressing thisissue requires collecting and putting together various kinds ofexpertise, but the most important requirement looks to be resolving“information asymmetry”.
Currently, the number of confirmed cases in Japan is 42,098 people(as of Aug. 5, 2020), and this means that to begin with there are more
people who are not infected. Yet why are the vast majority of people
restricted from going out or asked to refrain from social and economic
activities? This is because there is an “information asymmetry”. For
our part also, there are many cases where we ourselves cannot
determine whether we have been infected or not. This is why we aim
to lower the number of times we interact with other people byrestricting ourselves or refraining from going out. Japan has thus far
been successful in placing the so-called cluster control as its main
18 Japan SPOTLIGHT • November / December 2020

Author Kazumasa Oguro

strategy, but because the focus was on targeting the test subjects andtracing their contacts, the number of tests has been extremely low
compared to other countries. But when normal economic activities
re-open, if we are able to determine ourselves whether we have been
infected or not by utilizing technology, the situation will change
drastically.
This is why Professor Paul Romer of New York University, who is aNobel Prize winner in Economics and a heavyweight of the American
Economic Association, is recommending 20 million tests be conducteda day (https://roadmap.paulromer.net/). An infectious disease team in
the United Kingdom is also recommending 10 million tests a day(https://ephg-covid-19.org/), while the Rockefeller Foundation
proposes 30 million a day (https://bit.ly/2wWIxTC) and the Center for
Ethics of Harvard University 50 million a day (https://ethics.harvard.
edu/Covid-Roadmap). Quite coincidentally, from very early on (May 9,2020), I and others constructed an online “Emergency
Recommendation: Covid-19 V-shaped Recovery Project”, and in the“Exit strategy” addressing expansion of Covid-19 we released an
emergency recommendation to conduct 10 million tests a day.
The main message of the emergency recommendation is that “themost important aspect of balancing containment of the expansion of
infections with social and economic activities is for all citizens to beable to regularly (around once every two weeks) find out, if so they
desire, whether they have been infected with coronavirus, thereby
creating a system, within six months at the latest, where people who
continuously test negative feel safe to resume going out and work, andthis is most crucial in going forward to the next step.” Later, the Canon
Institute for Global Studies and others released similar
recommendations on expanding the testing system.

Is False Positive Really an Issue?
But expansion of the testing system in Japan is slow to move. Oneof the obstacles is the domestic debate on the “false positive issue”.
False positive refers to “testing positive when in fact the patient is not
infected with novel coronavirus” and an index called “specificity” exists
as a concept that demonstrates its accuracy (Table 1).
Specificity refers to “the percentage of accurately testing negative
when not infected with the novel coronavirus”, and the relationship“specificity = 1 – the percentage of false positive” generally holds. If
specificity is close to 100%, false positive is generally zero. If
specificity is 99.99%, false positive is a mere 0.01%. But whenhttps://www.jef.or.jp/journal/

COVER STORY 4
TABLE 1

False positive, false negative & theconcept of sensitivity & specificity
Confirmed cases(A+B)

Non-confirmed cases(C+D)

PositiveA

C False positive

Negative

B False negativeD

Sensitivity = A/(A+B)

Specificity = D/(C+D)

Source: Compiled by the author

For example, let us look at a scenario where 20,000 tests are
conducted twice a day, and suppose that there were 116 infectedpatients for the first test during a period when infections werespreading, and four infected patients for the second test when
infections are being contained. The average rate of positivity is 0.3% (=120 ÷ 40,000), but the rate of positivity for the first test is 0.58% (=116 ÷ 20,000), and the rate of positivity for the second test is 0.02%(= 4 ÷ 20,000), and if specificity is to be estimated, including for thosetests during periods when infections were spreading, true infectedpatients will also be counted and there is a possibility of mistaking
specificity or judging false positive. In fact, it is desirable to estimate
specificity from data when infections are being contained, and that canbe read from data in Chart 2.
This chart shows the trends in the positivity rate of PCR testing inAustralia for a given period (May 23 to June 18), and even when
20,000 tests, give or take, were conducted every day, there were manydays when the number of confirmed cases was in single digits. If false
positive exists around 1%, it means that it would not have beensurprising to see around 200 false positive patients alone every day,but that was not the case. On the other hand, if the positivity rate wasto be calculated using data in Chart 2, it is around 0.03%, and from ※1 and ※2 the specificity of PCR tests is generally around more than
99.97%.
Thus, “unless there are human errors such as sample
contamination, the specificity of PCR tests is generally 100% (false
positive is generally zero)” is the real truth, and politically opposing the
expansion of the testing system based on the “false positive issue”
basically does not hold.

specificity is 99%, it causes major issues.
For example, when specificity of PCR tests is 99%, false positive
exists by 1%, and if 14 million people (equivalent to the population
size of Tokyo) are tested, even if the number of those infected is in factzero, 140,000 people (= 1% of 14 million people) will test positive inthe form of false positive cases. Even if they are false positive, if
140,000 cases are confirmed, it will exceed the medical capacities
such as hospital beds and medical doctors who can treat the patients,
and thereby will be highly likely to cause a collapse in the healthsystem.
Therefore, in Japan, there are still voices that oppose the expansionof PCR tests citing the “false positive issue” as one of the reasons, but
unless there are human errors such as sample contaminations, thespecificity of PCR tests will never be 99% (false positive at 1%), and it
is basically 100% (false positive at basically zero). PCR tests areoutside the author’s expertise, but this is a fact that came out of aseries of study groups that were held with experts.
Several case studies that justify this will be introduced
briefly. First is the case of Wuhan city in China. Infections
CHART 1in Wuhan had been contained for a while, but because
Positive rate for low cumulative confirmed
newly infected patients were discovered between May 9
deaths by region (as of July 1, 2020)
and May 10, 2020, after about five weeks of no new
Cumulative
cases, all citizens in each of the districts of Wuhan were
Cumulative
Cumulative
Positive
confirmed
deaths
PCR tests
ratetested over the course of 10 days. Of roughly 9.9 million
cases
(②)
(③)
(=①÷③)
people, those infected with symptoms were zero, and 300(①)
were asymptomatic. “Specificity = 1 – percentage of false
Uganda889
01704120.5%
positive”, and it shows that even if all of the
Fiji
18
0
5105
0.4%
asymptomatic patients are false positive, the percentage
Rwanda1025
21479040.7%
of those that are false positive is less than 0.0031%, andMyanmar
299
6
79072
0.4%
therefore the specificity of PCR tests turned out to be
more than 99.9969%.
Taiwan
447
7
77025
0.6%
Chart 1 lists the rates of positivity in regions with low
Malta
670
9
99198
0.7%
numbers of cumulative deaths (as of July 1, 2020), but
New Zealand
1178
224053290.3%
false positives are part of the confirmed cases andSlovakia
1667
28
211813
0.8%
therefore “percentage of false positive ≦ rate of
Latvia1118
301527780.7%
positivity” holds (※1). As previously stated, “specificity =1 – percentage of false positive” (※2), and for example,
Lithuania
1817
78
4282380.4%
the rate of positivity in Australia is 0.3%, and therefore
Australia
7834
1042505923
0.3%
from ※1 and ※2 the specificity of PCR tests can be
South Korea
12850
282
1264422
1.0%
shown to be more than 99.7%. But included in the 0.3%
Japan
18723
974
467444
4.0%
rate of positivity must be those that are truly positive, andSource: Compiled by the author based on “Coronavirus Pandemic (Covid-19) – the data” in Our World in Data
hence the specificity of PCR tests may be higher.
Japan SPOTLIGHT • November / December 2020

19COVER STORY 4

with sensitivity of 40%? Chart 3 shows theresults of a simplified simulation analysis
using the SIR model, assuming a basic
Confirmed
Number of
Number of
Positive
Positive
Confirmed
cases
tests
reproduction number R0 of 2.5, infectious
tests
rate
rate
Date
cases
(7-day rolling (7-day rolling(②)(=①÷②)(=③÷④)(①)
period of 14 days, and specificity of 100%.
average, ③)
average, ④)
The horizontal axis shows “the number of2020-05-23
14
21580
0.06%
11
25230
0.04%
days since the initial condition” and the2020-05-24
11
32533
0.03%
10
26096
0.04%
vertical axis shows “cumulative number of2020-05-25
3
19405
0.02%
9
26024
0.04%
confirmed community transmissions”.
2020-05-26
9
44023
0.02%
8
28908
0.03%
The chart also compares four scenarios:
2020-05-27
15
50098
0.03%
9
32393
0.03%
“Basic scenario”, “Test expansion 1”, “Test2020-05-28
6
29123
0.02%
9
32823
0.03%
expansion 2”, and “Test expansion 3”.
“Basic scenario” sees infections expanding
2020-05-29
11
30178
0.04%
10
32420
0.03%
with no tests being conducted, while “Test2020-05-30
23
30916
0.07%
11
33754
0.03%
expansion 1” shows a scenario where PCR
2020-05-31
12
26030
0.05%
11
32825
0.03%
tests with 70% sensitivity are conducted2020-06-01
10
17652
0.06%
12
32574
0.04%
for a population of 10 million in 10-day
2020-06-02
9
18167
0.05%
12
28881
0.04%
intervals. Testing 10 million residents at
2020-06-03
17
22313
0.08%
13
24911
0.05%
10-day intervals indicates building a testing2020-06-04
8
33629
0.02%
13
25555
0.05%
system for 1 million tests per day.
2020-06-05
11
32863
0.03%
13
25939
0.05%
“Test expansion 2” shows a scenario
where PCR tests with 70% sensitivity are
2020-06-06
11
11396
0.10%
11
23150
0.05%
conducted for 10 million residents at five2020-06-07
4
26874
0.01%
10
23271
0.04%
day intervals, and “Test expansion 3”
2020-06-08
5
16053
0.03%
9
23042
0.04%
shows a scenario where PCR tests with
2020-06-09
5
17169
0.03%
9
22900
0.04%
40% sensitivity are conducted at five-day
2020-06-10
2
29270
0.01%
7
23893
0.03%
intervals. Testing residents of 10 million at
2020-06-11
9
31269
0.03%
7
23556
0.03%
five-day intervals indicates building a
2020-06-12
9
34327
0.03%
6
23765
0.03%
testing system of 2 million tests per day.
2020-06-13
5
37101
0.01%
6
27438
0.02%
Simulation analysis has been done
based on these scenarios, and the2020-06-14
12
29702
0.04%
7
27842
0.02%
overview is as follows. First, since the2020-06-15
18
15796
0.11%
9
27805
0.03%
initial infectious rate is 0.1% and the2020-06-16
15
20198
0.07%
10
28238
0.04%
population is 10 million, the number of2020-06-17
12
27770
0.04%
11
28023
0.04%
confirmed cases in the initial stage is
2020-06-18
23
51380
0.04%
13
30896
0.04%
10,000 people (= 10 million people ×Source: Compiled by the author based on “Coronavirus Pandemic (Covid-19) – the data” in Our World in Data0.1%), and the non-infected are 9.99
million people (= 10 million – 10,000
Sensitivity or Frequency of Tests?
people). From the initial stage to day one, infected patients at the initialstage randomly transmit the virus at a basic reproduction number ofIf false positive is not a major issue, the next issue that comes is
R0=2.5 to non-infected people assuming a certain level of group“false negative”. False negative refers to “testing negative when in fact
immunity functionality. In this case, when infected patients are
the patient is infected with the novel coronavirus”, and an index called
confirmed through regular PCR tests (sensitivity = 70% or 40%,“sensitivity” exists as a concept to demonstrate its accuracy.
specificity = 100%) conducted for the residents in the region via an
Sensitivity refers to “the percentage of accurately testing positive
expansion of testing, these confirmed patients are assumed to bewhen a patient is infected with the novel coronavirus”, and generally
quickly quarantined. Similarly, the number of confirmed cases on day“sensitivity = 1 – percentage of false negative” holds. If sensitivity is
two and forward is estimated based on data such as the number ofgenerally 70%, false negative is generally 30%, but if sensitivity is
confirmed cases on day one.
40%, false negative becomes 60%.
The results of this simulation analysis are shown in Chart 3. What
Let us suppose there is a region with a population of 10 million andwe can learn from the results is that as trends in the number of
an initial infectious rate of 0.1%, how different will the trends be in theconfirmed cases show for “Test expansion 1”, “Test expansion 2”, andnumber of confirmed cases when tests are expanded for PCR tests“Test expansion 3”, the higher the “sensitivity” and “frequency” ofwith sensitivity of 70% and when tests are expanded for PCR tests
testing, the lower the number of long-term cumulative confirmed
CHART 2

Positive rate of PCR tests in Australia

20 Japan SPOTLIGHT • November / December 2020

COVER STORY 4

income due to the current Covid-19 pandemic,
and secure the necessary human resources to(population of 10 million, initial infectious rate 0.1%)
expand testing. In addition, in order to resolve(Vertical axis unit: number of people)
the bottlenecks that prevent securing(Horizontal axis unit: day)necessary materials, a “Network for Emergency
3000000
Measures for Covid-19 Testing” should be built
Basic scenario (R0 = 2.5, infectious period = 14 days)
with relevant ministries, prefectures, andTest expansion 1 (10-day interval, 70% sensitivity)
2500000
Test expansion 2 (5-day interval, 70% sensitivity)
collaborative organizations coming together
Test expansion 3 (5-day interval, 40% sensitivity)
around the Prime Minister’s Office. It will also
2000000
be worth considering whether this body cancome together and have the functionality of
1500000
resource procurement, implementation, andaggregation and analysis of test results.
1000000
To date, many research institutions and500000pharmaceutical companies have been working
to develop vaccines, but no matter how
0
enormous the capital investment, successful
vaccine development in 10 years is not
Source: Compiled by the author
guaranteed. Of course, it is important that theworld work together and invest in vaccine
cases. On the other hand, cumulative confirmed cases showeddevelopment, perhaps more than it has up to now, and aim for urgent
progressive increase for the “basic scenario” where no tests wereand speedy vaccine development, and such efforts should continue,
conducted. This indicates the importance of the “sensitivity” andbut coming up with an “exit strategy” that relies solely on a successful“frequency” of the tests.
outcome comes with huge risks. Thus, developing “treatment”, notWhich, then, is more important, the “sensitivity” (70% or 40%) orjust new vaccines, is vital.
the “frequency” (10-day interval or five-day interval)? This can also be
In other words, once infected with the novel coronavirus, if proper
read from Chart 3. The chart shows that the number of confirmed
treatment can be developed at various stages of its symptoms throughcases during each peak at “Basic scenario” > “Test expansion 1” >usage of effective existing medication or a combination of medications“Test expansion 3” > “Test expansion 2”, but the relationship “Testand prescribed quantities or frequency, and if the mortality rate can be
expansion 1” > “Test expansion 3” is particularly important.
brought down to a level equivalent or less than regular influenza, the“Sensitivity” for “Test expansion 1” is 70% and “sensitivity” for “Testissue of a trade-off between life and economy can be resolved andexpansion 3” is 40%, and while the sensitivity of PCR tests for “Testnormal economic activities can be restored.
expansion 3” is inferior to “Test expansion 1”, by increasing the test
Regardless, what is important in addressing the expansion of Covid“frequency” from the 10-day interval to five-day interval, the number
19 is the final goal and a flexible strategy. To begin with, it is notof confirmed cases on the 50th day for “Test expansion 3” is at a lower
appropriate to aim for 100% containment of the virus in a short period
level compared to “Test expansion 1”. This indicates the possibilityof time; rather, it is impossible. To uphold the mechanism ofthat “frequency” of PCR tests is more important than “sensitivity”.
democracy and universal values such as freedom and basic humanIn preparing a mass PCR testing implementation system, the driverights, and to gradually restore economic activities, it will bethrough method of South Korea, the “regional PCR centers” of theappropriate to aim for a 90% to 95% containment of Covid-19 by
Tokyo Medical Association, utilizing laboratories of dental doctors andgathering public and private knowledge and expertise, and utilizing
medical doctors, and permission for pharmacies to do PCR testing as
science and the latest technology led by the private sector.
adopted in New York may all be utilized, but organizing PCR testing for
As Chart 3 shows, the key to an exit strategy lies with “expansion of
voters at polling stations in the event of a House of Representative
PCR tests”. An incomplete strategy indeed is the worst, and it isGeneral Election may also be useful. In addition, in order to conduct
important to be fully aware that aiming for a balance under such an
mass testing, there is naturally a need to secure a great number ofincomplete strategy will, in the end, cause great harm to both.
human resources and materials.
For human resources, medical experts such as doctors and nurses
alone are insufficient in numbers to serve as testing personnel, andtherefore there will be a need to allow testing to be conducted by nonmedically licensed personnel also, who have gone through proper
training, under the supervision of doctors or others. In this instance,
Kazumasa Oguro is a professor of the Faculty of Economics at Hosei
University and consulting fellow at the Research Institute of Economy, Trade &the recommendation is to treat expansion of testing as part of public
Industry at METI.
works, thereby prioritizing employing those who have lost jobs and
CHART 3

1
7
13
19
25
31
37
43
49
55
61
67
73
79
85
91
97
103
109
115
121
127
133
139
145
151
157
163
169
175
181
187
193
199
205
211
217
223
229
235
241
247
253
259
265
271
277
283
289
295
301

Simplified simulation analysis

Japan SPOTLIGHT • November / December 202021

COVER STORY • 2

AInterview with Dr. Yasuyuki Sawada, Chief Economist of the Asian Development Bank

sia to Lead a Global Economic
Recovery in 2021 After the
Pandemic Recession

By Japan SPOTLIGHT
The Asian Development Bank (ADB) released its latest economic forecast for the Asian region on Dec.
10, 2020, as shown in “GDP growth rate and inflation, % per year” (Page 7 of Asian Development Outlook
Supplement, December 2020, https://www.adb.org/sites/default/files/publication/658721/ado-supplementdecember-2020.pdf). Japan SPOTLIGHT interviewed Dr. Yasuyuki Sawada, the ADB’s chief economist on
this outlook, as the Asian economy is now considered the main engine of the global economy, in particularduring the pandemic crisis.
(Dec. 10, 2020)

Key Features of the Outlook

element.
Basically, divergent paths can be explained by
JS: How do you think growth rates in
how successful each country or sub-region is indeveloping Asia will affect its
containing health risks. East Asia is doing wellpresence in the global economy?
and recovering faster than expected in the healtharena; China is leading this. South Asia is
Sawada: If we decompose global growth rates into
expected to contract significantly this year. In theregional contributions – Asia, Latin America, etc. –last quarter, India was seriously affected but
we can see that developing Asia’s contribution has
recently we see strong recovery. Accordingly, webeen more than half of global growth over the last
have upgraded our growth forecast for India thisdecade. The continued growth of Asia is critical as
year. In contrast, we have revised down our
it will be the main driver of global growth.
growth forecast for Southeast Asia, from a 3.8%
According to 2021 global growth forecasts, more
contraction in our September forecast to a 4.4%
Dr. Yasuyuki Sawada
than half of global growth will be supported again
contraction this time, mainly because theseby developing Asia and the Pacific region. In thiseconomies in Southeast Asia are still hampered
respect, Asia has been and will be a core global driver of the worldby the Covid-19 pandemic.
economy.
JS: There has been a diversity of economic

performance among the nations in Asia during the
pandemic. What do you think has made thisdifference? Do you think the public health policy
measures to contain the virus or macroeconomic
policy measures have made the difference?

Sawada: We are now seeing divergent paths of recovery within theregion, with different sub-regions showing different speeds ofrecovery. Both public health measures to contain the pandemic andmacroeconomic policy can explain this diversity, i.e., public healthcontainment policies and the adoption of fiscal policy to support
households as well as especially micro and small-scale enterprises.
Health and the economy are interrelated but I think the former, healthcontainment, is more critical. Those countries that successfully
controlled the pandemic can reopen their economies, leading to better
economic prospects. So, I think health containment is a decisive
10 Japan SPOTLIGHT • January / February 2021

Expected Structural Reforms
JS: Do you think structural economic reforms to raise

productivity would also be useful in getting theireconomies back to normal?

Sawada: In the medium term, I think structural economic reforms arenecessary to help economies rebound. The pandemic will have longlasting impacts on the growth potential of countries, and physicalcapital is affected because investment has been decreased. Investor
sentiment has been adversely influenced and has gone down. Also,
some capital became obsolete because firms closed, or businessmodels changed under the sharp digitalization of the economy during
lockdown. Human capital is also affected, on health, education andunemployment. Productivity growth may slow as innovation activity isalso hampered. Therefore, structural economic reforms are essential
to support the recovery and sustain long-lasting growth.
For example, competition policies will be needed to guard against
https://www.jef.or.jp/journal/

increasing risks of protectionism.
In order to maximize the benefits of digitalization or the evolution ofdigital economic transactions, I think lowering the entry barrier indigital platforms will be very important particularly for small and microenterprises. Overall, competition policies to promote fair competition
are critical in this regard. Labor markets should be made more flexible
to facilitate adjustments in employment with proper safeguards. Also,
regulatory frameworks should be flexible enough to allow firms toadapt to rapidly changing business environments, including
digitalization. Public investments in physical infrastructure will be
indispensable to facilitate these structural reforms, digitalization, andsupport robust recovery. These would be sensible policies in normal
times, but their urgency is amplified by the current situation.
JS: Inflation would seem to be moderate in general.

Are there any concerns about inflation rising in the
future?

Sawada: According to our forecasts, inflation is not necessarily amajor concern. Depressed demand due to Covid-19 and low oil prices
are likely to dampen inflation pressures. So our forecast for inflation
for developing Asia was revised slightly down to 2.8% from 2.9% in
September. The impact from falling demand and lower oil prices willcontinue next year, so this could go down to 1.9% for next year’s
forecast. African swine flu was a problem in China last year, pushing
up pork and meat as well as food prices overall. However, this impact
has more or less disappeared. So, lower demand and lower oil prices
seem to have offset this potential food price hike due to African swine
flu. Supply-side disruptions may increase inflation but, overall, theinflationary effect seem to be dominated by falling demand and lower
oil prices, hence the 2.8% forecast this year and 1.9% for next year for
inflation.

What Happens to Global Supply Chains?
JS: Turning to global supply chains, Chinese people inparticular are concerned over disruptions to global
supply chains; some economists indicate that thisshould not be a major concern and that supply
chains have been preserved in spite of the pandemic.

Sawada: After all, there are no big concerns about the pandemic’s
impact on global supply chains.
Even before the pandemic, supply chains were changing and somemanufacturing industries in China were moving out of the country.
One element is labor costs: China has been the base for low-costlabor-intensive manufacturing since it joined the World Trade
Organization (WTO) in the early 2000s. As a result of successful
growth, however, wages have gone up and, accordingly, labor-intensive
industries have started relocating to other countries. This process of
supply chain change seems to be accelerated when the US-China trade
conflict intensified in 2018-2019. This promoted the process of firms
shifting from China to other Asian countries, especially in the laborintensive industries. Examples include the electronics industry movingfrom China to Vietnam as well as the labor-intensive apparel industry
moving to Bangladesh.
Policies should not aim to restore or stop this transformation in
production and trade but rather facilitate it in a good direction because
overall Asia seems to be gaining from these changes in supply chains.
China in the last decade has transformed from an export-driven
economy into a more domestic demand-driven economy. So-called“rebalancing” has been ongoing which is not necessarily bad news for
China because it is an indication of welfare improvements among
Chinese people. Policy should not aim to stop these natural,
productive changes based on an exogenous, global environment but
should rather facilitate and promote healthy business investment andtrade by relaxing investment restrictions and removing red tape.
Indeed, this would be another important role playing out in structuralreform. The pandemic, of course, has disrupted global value chains atleast temporarily, but in the second half of 2020, we observed arebound in trade and supply chains, especially with Chinese exports ofpersonal protective equipment (PPE), leading to a strong rebound of
China’s production and exports. Also, electronics products have been
showing a strong rebound in East Asian countries due to increasing
demand from people working at home.
JS: The digital economy is now expanding. Someeconomists are saying that we have a global service
chain and not a global manufacturing value chain. In
that sense, India might be in a better position forgrowth in the medium term rather than China.

Sawada: If we use exports of commercial services as one measure, inthe last 10-12 years, Asia’s exports of commercial services haveincreased sharply – more than doubling from $500 billion in 2005 to$1.33 trillion in 2017 (latest figures). This indicates a deepening of
global service chains in Asia, as well as connections to the global
economy. At the same time, we should note that global service chainsand global manufacturing value chains are interrelated and, actually,
there is a synergy between the two chains. That is very important. We
see the emergence of a global value chain fueling trade in services andthe deepening of the global service chain, which further induces adeeper global manufacturing value chain. I think that is very importantin particular for Asia, and regional integration has combined advanced
technology like 5G with an expansion in trade in services. Your
question about India’s position in the mid-term is an interesting one,but I am not sure about India being in a better position in the medium
term because China’s leading role in innovations will also be
strengthened due to the synergy of manufacturing and services. We
will see five to 10 years from now whether India dominates, but I thinkboth countries will continue to gain from the synergies between thetwo chains of global manufacturing and services.

Main Risk to Predicted Recovery
JS: What is the main risk which could derail recovery

in this region?

Japan SPOTLIGHT • January / February 2021

11

Sawada: A prolonged pandemic is probably the largest source of risk,
and recurrent waves such as the third wave happening in the UnitedStates, and there is another wave in Japan too. These are the mostprominent risks, but at the same time we see developments withvaccines that temper this risk. Three vaccines have announced positive
results from large scale trials, and this enhances hopes for rolling out
in 2021. For developing Asia, not only vaccine development but also
safe and effective delivery is important. The largest risk, then, iswhether we can secure safe and timely delivery of vaccines. There arealso geopolitical tensions between the US and China over trade as wellas technology. That is another big risk. The recent US election
outcome may result in more predictability. Tension between these twolargest economies in the world had generated uncertainty with which
private sector entrepreneurs might have taken a wait-and-see strategy
which undermines business investments. But I think that the US
election result will decrease uncertainty, enhance private investment
and increase overall productivity. Also, we can expect a more
multilateral approach in resolving bilateral trade conflicts. Having said
this, it is unlikely to fully resolve the tension between US and China
instantaneously. I think that will take some time to see major progress.

Impact of Asia’s Regional FTAs on Global
EconomyJS: Regional trade agreements will be very importantwhen the WTO does not work so well. The Regional
Comprehensive Economic Partnership (RCEP) was
recently concluded. China seems to be interested injoining the CPTPP, and the US may come back to the
TPP under a new administration. In that sense, thisregion’s international cooperation efforts, mainly inthe area of regional FTAs, will be key to achieving
stability in global growth. Would you agree with this?

Sawada: I agree. Regional cooperation initiatives are critical to support
Asian growth, which will then support the global economy because
Asia is a key driver of the global economy as I mentioned before. The
RCEP is the largest FTA in the world, and participating countries in the
RCEP agreement account for about 30% of global GDP and 30% of theworld’s population. So this is a major achievement and will also be abuilding block towards a more open global economic system thatfacilitates multilateralism. The RCEP does not include the European
Union or the US, but this doesn’t mean they will not gain from it. There
was one study by Peter Petri of Brandeis University (now with the
Brookings Institution) and Michael Plummer of Johns Hopkins
University, and according to their simulation analysis both the EU andthe US stand to gain from the RCEP. This will be a push towards amore global open economy. In the short term, the RCEP contribution
to Asian trade and income may be rather modest. This is because the
RCEP is confined to tariff measures and these tariff cuts will take sometime to come into effect, and tariffs overall in Asia are not so high.
After all, there is not much more room for cutting them further. So theeffect will be positive but limited in the short term, but it is a steppingstone towards a broader, more open economic system which is critical
12 Japan SPOTLIGHT • January / February 2021

for Asia’s role in supporting global growth in the post-pandemic
economy.

Wellness as a Key Factor for Sustainable
Recovery
JS: What motivated you to highlight the role ofwellness in development in the September 2020
outlook and retain it in your new outlook?

Sawada: We prepared this wellness report before the pandemic,
considering wellness to be a key to achieving robust development andalso achieving Sustainable Development Goal No. 3, so we made it acore concept. Wellness is the pursuit of activity, choices, and lifestyles
that leads to stable holistic health. We look from the physical andmental dimensions as the key aspects, but it also includes emotionaland social dimensions.
We have seen lots of reports stating that during the pandemic,
people stayed at home and thus their physical and mental health was
negatively affected. So in this respect I think recovering wellness,
especially physical and mental health, is critical. On the economic
importance, we computed wellness, industry size and growth, findingthat it is a large and growing part of the economy. Before thepandemic, 11% of regional GDP was accounted for by wellness orwellness-related activities (2017) and the wellness economy was
growing more than 10% annually. So it is a large and growing part of
the regional economy and will be vital as a core element for supporting
the post-pandemic recovery in the Asia and Pacific region.

Concerns About Japanese Economy in 2021
JS: According to your estimates, the Japanese

economy will not be in such a good state in 2021(“Gross domestic product growth in the majoradvanced economies (%)”, Page 3, https://www.adb.
org/sites/default/files/publication/658721/adosupplement-december-2020.pdf). The growth rate for2021 looks lower than in European countries, but
how can this be given that the spread of infection in
Japan is relatively small?

Sawada: In terms of statistics, for 2020, the extent of the drop for the
eurozone economy is deeper – our revised estimate is -7.4%, so a
deeper GDP decline and then recovery. Because of this contraction, we
will see a higher growth rate next year. Japan had a milder dropcompared to the eurozone economy and that is why the growth rate
for 2021 looks smaller. We envision robust recovery for Japan nextyear, but the slope will be flatter because Japan has been relatively
successful in containing the epidemic and the Japanese government
has committed to large-scale financial stimulus to support theeconomy, such as households and businesses.
Written with the cooperation of Joel Challender who is a translator,
interpreter, researcher and writer specializing in Japanese disaster preparedness.

COVER STORY • The World Trade System with the Covid-19 • 9Global Collective Action– the Case for
Minimalist Strategies

By Jean Pisani-Ferry

The range of problems whose solutions require international
collective action and the acuteness of these problems are
unprecedented. Yet as dreadfully illustrated by the Coronavirus
crisis, the willingness of nation-states to cooperate to address these
problems is lower than it has been for three quarters of a century.
This tension is here to stay. How it will be solved – or not – will
have a fundamental bearing on our ability to tackle rising challenges.
This calls for a minimalist but effective strategy that builds on
existing institutional arrangements and draws on solutions at work invarious sectors to develop adequate incentive schemes that help
address collective action problems, while limiting constraints to
independent decision-making at national level.
These are the ideas developed in this article. Section 1 revisits thecase for global collective action; Section 2 explains why themismatch between the demand for global collective action and the
supply of cooperation is structural; and Section 3 argues that
although they fall short of the ambitions for a “new world order”,
arrangements at work in a series of fields provide the basis fordefining a minimalist agenda for collective action.

Global Challenges: Reality or Artifice?
“A global crisis requires global solutions”: ever since the G20
Summit in London in 2009, there has been a tendency to assume
that pressing current challenges call for closer coordination, tighter
global rules and stronger international institutions, in short for moreglobal governance. It has been Dani Rodrik’s merit to question it. In a
recent paper (“Putting Global Governance in its Place”, World BankABCDE Conference, June 2019), he claims that the case for global
governance has been overstated. His point is that the relevance ofthe rationale it rests on, global public goods (which must be
managed at the global level), is much narrower than assumed byconventional wisdom (Rodrik makes a similar point about beggarthy-neighbor policies. I concentrate here on global public goods).
According to him, “The world economy is not a global commons,and virtually no economic policy has the nature of a global public
good (or bad).”Rodrik is undoubtedly right that, as is often the case in policy
discussions, precisely defined economic paradigms have been takenout of context and applied much beyond the range of cases where
they have relevance. Especially, the global public goods concept has
been used metaphorically as a justification for a large set of
https://www.jef.or.jp/journal/

Author Jean Pisani-Ferry

concerted action issues, many of which do not exhibit the features ofa true public good.
Significant positive spillover effects from national policy decisions
are not sufficient to characterize a global public good. Development,
for example, is not really a public good (though it does have positive
spillover effects) and as I will develop, even public health or financial
stability do have the required characteristics. The metaphorical useof economic concepts is tempting, but it often leads to wrong policy
prescriptions.
Rodrik’s point is valid. But it does not follow from it that the needfor international collective action can be overlooked and that eachcountry should only care about its own priorities. To start with,managing the true global public goods has become a much morepressing and challenging issue than at any time before in world
history. A preserved climate, biodiversity, ocean life, a global
Internet, a reasonably well-managed outer space are true global
public goods. These – especially the prevention of climate change –are furthermore first-order challenges whose implications may dwarf
the costs and benefits of standard economic and trade cooperation.
The relevance of the global public goods concept may have been
overstated, but this is no reason to disregard its increased andpressing relevance in major fields.
Moreover, the fact that some channels of interdependence do not
result in the existence of a true global public good does not eliminate
the need for structured international cooperation. It only means thatcollective action does not face the same challenges and does notneed to rest on the same type of international arrangements. This
point can be illustrated by comparing climate change mitigation andthe preservation of financial stability. A preserved climate is a true
global public good, because every emission of greenhouse gas has
the same consequences, wherever it takes place. Formally, eachcountry’s utility has the form:

where Ek is the emission reduction effort of country k and fk(Ek)measures the corresponding disutility in terms of equivalentoutcome (which depends on a country-specific abatement curve).
Except perhaps for very large countries dU/dEi is negative (the direct
benefits from a country’s own climate preservation efforts are lower
than the welfare costs of emission abatement), whereas dU/dEj ispositive for j ≠ i (the other countries’ efforts are good for me). As
Japan SPOTLIGHT • July / August 2020

41

COVER STORY 9

each country benefits equally from the emission cuts of all its
partners and absent an international coercion mechanism, each has
an incentive to free-ride on the common effort. Hence, the need – ina first-best world – for coercive global governance mechanisms thattackle the free-rider curse.
Because of the frequently transnational character of financial
crises, it is tempting to regard financial stability also as a public
good. Actually, it has often been dubbed one (“International Financial
Stability as a Public Good”, speech by Masaaki Shirakawa at BOJIMF Conference, Oct. 14, 2012). Whereas no country is totallyimmune from spillover effects from financial crises in partnercountries, however, stability depends first and foremost on domestic
efforts and secondarily on those of financial partners. Formally,

where λij is a measure of bilateral financial linkages. In most cases
dU > dU > 0, meaning that whereas the partners’ efforts matter,dEi dEj≠idomestic efforts matter more and some at least are worth being
undertaken in isolation. In such cases there is no incentive to freeride on the partner’s efforts, but each national regulator may fail todo enough as it overlooks the positive spillover effects of its action.
The same applies in public health: each government cares about
preserving domestic residents, but in so doing it also reduces
contagion to other countries.
What each regulator wants is to ensure that its counterparts act
sufficiently strongly in their own interest. There is still a need forsome form of global governance, the goal of which is to agree on
standards, to ensure transparency and to create trust, so that eachregulator adequately contributes to the common effort. Whereas
tackling climate change requires coercion, such interdependence
requires information and nudge.
The observation that there are fewer public goods than often
assumed does not therefore weaken the case for international
collective action, as Rodrik suggests. It merely calls for differentiatedgovernance models, whose principles and binding features should
depend on the strength of the corresponding interdependence andthe nature of the underlying game.
Indeed, the design of appropriate global governance regimes canbe regarded as a matching exercise whereby cooperation schemes ofvarying scope and exigency meet interdependence channels ofvarying nature and strength.

42 Japan SPOTLIGHT • July / August 2020

The Nature of Obstacles
If the demand for global collective action is strong, is the problem
on the supply side? Appetite for common solutions has undoubtedly
diminished as a consequence of the worldwide rise of economic
nationalism. Furthermore, the insistent assertiveness of the Chinese
leadership under President Xi Jinping and the aggressively unilateralstance of the US administration of President Donald Trump bothundermine existing institutions and mechanisms.
Governments that still believe in collective action claim their intent
to keep multilateralism alive until the Trumpian parenthesis closes,
China reconsiders its attempt to build a world order of its own, andthe nationalist wave recedes. Hope, indeed, is a tempting strategy.
But obstacles to collective action are in fact of a more fundamental
nature.
To start with the United States, reluctance over multilateralentanglements has a long history. It has manifested itself on several
occasions, from the rejection of the Havana Charter in 1948 to therefusal of the International Criminal Court in 1998 and to recurring
difficulties in Congress with trade agreements or the ratification ofincreases in IMF resources. But something new is happening: thegrowing perception in policy circles is that the US has accepted too
many constraints on its own behavior for the sake of building a
multilateral regime that does not put enough constraints on the otherplayers’ behavior.
China is evidently at the core of US grievances, but the issue is infact broader. When former deputy USTR chief Stephen Vaughn saysthat the WTO’s Appellate Body instituted on the occasion of thecreation of the organization has “become its own sort of rulesmaking body” that tries to “answer questions that the members left
open during the negotiations” and that “American policymakers ofboth parties have been warning the rest of the world that [..] theUnited States never agreed to this sort of a process” (Trade Talk with
Chad Bown and Soumaya Keynes, Episode 111, Peterson Institutefor International Economics, Nov. 25, 2019) he is expressing widely
shared concerns amongst US lawmakers, some of which werealready spelled out by officials in the administration of Barack Obama(“After Doha: Why the Negotiations Are Doomed and What We
Should Do About It” by Susan Schwab, Foreign Affairs 90(3), 2011).
Overall, however, there is evidence of growing US doubts over the
benefits of being bound by international disciplines which limit thescope of (US) policy choices but are not regarded as putting effective
enough constrains on the behavior of other players in the global
game. For this reason, even if the US eventually abandons the“America First” doctrine, reluctance to engage in bindingCOVER STORY 9international arrangements is likely to persist. As Vaughn puts it, “Ifyou’re really just talking about getting other countries to do what you
want the other country to do, I think most of the time, the best way
to do that is going to be to use the direct leverage of the UnitedStates in terms of its market.” Vaughn, who confesses no sympathy
for protectionism, considers that trade policy and international
economic policy more broadly should be the result of a domestic
political process rather than from an external process and proceduralcommitments.
What is being suggested is that the US could be freer ofinternational entanglements, but behave as a liberal hegemon thatoffers global leadership and provides adequate resistance todestabilising shocks. But this is precisely what it was unable to do in
the interwar period, at a time when there was hardly a global
governance system to speak of. Adam Tooze notes that “the British
couldn’t and the United States wouldn’t [...] assume responsibility
for [...] (a) maintaining a relatively open market for distressed goods;(b) providing counter-cyclical long-term lending; and (c) discounting
in crisis” (The Deluge: The Great War and the Remaking of Global
Order 1916-1931, Penguin, 2014). In contrast, the US assumed this
responsibility in the postwar era through the development of a webof global rules and the creation of dedicated global institutions, butalso through a proactive policy attitude, for example through crisis
management initiatives such as the provision of swap lines topartner central banks.
This is where China and the increasingly multipolar character ofthe world economy factor in. The world is not that of the 1960s oreven the 1990s anymore. Even if the US “would”, it might not“could”. It is not the dominant trade power anymore, and even if itwere willing to “maintain an open market for distressed goods”, it
could not lastingly play the role of importer of last resort. As long as
the US was an unrivalled global economic and geopolitical power,
leaders in the White House could trade off short-term domestic
economic or financial interests for the wider development of theliberal international order they regarded as being ultimately in theirnational interest. But the growing rivalry with China and moregenerally the advent of a more multipolar world where a series ofcommensurate powers coexist is likely to result in a retreat fromliberal hegemony (The Great Delusion: Liberal Dreams andInternational Realities by John Mearhsheimer, Yale University Press,
2018). In a more economically and geopolitically balanced world, it
is more difficult for the US – or any other would-be hegemon – tointernalize the costs of systemic stability, especially if other players
are not bound by rules.
Whether and where the US, China or the European Union “could”

and “would” nevertheless assume the corresponding responsibility is
the defining question for global collective action in the coming
decades. Even leaving aside the sheer geopolitical rivalry between
the incumbent and the rising power and the risks of falling into the“Thucydides trap” emphasized by Graham Allison (Destined for War:Can America and China Avoid Thucydide’s Trap?, Scribe, 2017), it
will prove challenging to avoid what Fred C. Bergsten calls the“Kindelberger trap” (The United States vs. China, Unpublished MS,2020) and to share responsibility for leadership.
Scholars of collective action have long pointed out that group size
is a key variable to monitor when analyzing impediments to collective
action (The Logic of Collective Action: Public Goods and the Theory
of Groups by Mancur Olson, Harvard University Press, 1965). Todd
Sandler regards the difficulty of forming large effective coalitions as
the first of Olson’s seven rules of thumb (Global Collective Action,
Cambridge University Press, 2004). This can be illustrated by thefact that one of the main reasons behind the success of the 1987
Montreal Protocol on eliminating ozone-depleting gases was that
only a few countries were significant producers: the US, the EU andJapan accounted for 80% of total production and developing
countries for 5% only. But when the same approach was applied togreenhouse gas emissions, it resulted in the failure of the Kyoto
Protocol of 1997. There were simply too many major emitters in thedeveloping world for the joint commitment of the advanced countries
to be viable and effective.

A Minimalist Agenda
What is commonly called the rules-based multilateral system (ororder) covers in fact a fraction of the web of international
interdependence: essentially international trade and macro-financial
interactions. In the first of these fields, global governance relies on acore set of hard principles backed by a relatively weak institution, theWorld Trade Organization, but effective dispute settlement
mechanisms (until the US challenged them). In the second,
governance relies on a strong, adaptable institution, the International
Monetary Fund, underpinned by fairly general principles. In bothfields, however, global governance is on the retreat and a process offragmentation is at work.
Outside this core domain, a series of soft arrangements have filledgaps in the incomplete global architecture. In some cases they havefailed to produce meaningful results; in some others they havedelivered a real modicum of collective action without encroaching on
national sovereignty in a major way. Two interesting models in thisrespect are, first, cooperation between independent institutions
Japan SPOTLIGHT • July / August 2020

43

COVER STORY 9

endowed with similar mandates (such as central banks, regulatory
agencies and competition authorities) and operating at a distancefrom political government; and, second, pledge-and-review
mechanisms based on shared standards, such as those at work forbanking regulation and to some extent climate change.
Hard international law is in some cases indispensable toeffectiveness. But depending on the nature of the underlying game, it
may not be needed. In fact, the range of solutions accessible without
resorting to binding constraints is significant. What is needed is aminimalist strategy that ensures the best use of necessarily limited
legal, institutional and financial resources, in a way that matches thenature of the collective action problem that is to be tackled.
This minimalist approach can rest on seven essentials.
1. A common knowledge base. Shared knowledge is essential toidentify issues and overcome obstacles to cooperation arisingfrom divergent representations of the same problem. Common
assessments of upcoming challenges help shape policies evenin the absence of any binding arrangement. Climate change
mitigation, macro-financial coordination and financial stability
initiatives heavily rely on shared knowledge assembled byepistemic communities. Public opinion can pressure
governments to act.
2. Shared principles. Fundamental principles that commanduniversal support, like national treatment for trade or the
no-beggar-thy-neighbour principle in international finance do
not eliminate divergence but limit the scope for it. They also
serve as an informal coordination mechanism between variablegeometry initiatives. These principles are few, which implies that
it is important to preserve them.
3. Nimble institutions. Institutions were once considered themasters of sectoral fiefdoms within the multilateral system. But
nowadays the fiefdoms hardly cover globalization’s territory.
With the principles, procedures and governance they are
equipped with, institutions should be regarded as wells of social
and informational capital that international collective action candraw from. They can provide support much beyond the confinesof their initial mandate.
4. Transparency. Reliable assessments and independent
evaluations of policy actions provide an indispensable basis forcooperation. Transparency does not compel a government to act
in a certain direction, but it helps sort out effective fromineffective policies.
5. Incentives. Global collective action increasingly relies onpledge-and-review mechanisms that do not compel participants
to achieve specified targets but set standards. Such incentive
44 Japan SPOTLIGHT • July / August 2020mechanisms, often buttressed by markets or public opinion, areat work in climate action and financial stability. They can help
considerably in fields where the nature of the underlying gamedoes not require collective action to rely on coercion, but where
national or regional initiatives need to be coordinated.
6. Clubs. Absent universally enforceable rules, sectoral or regional
clubs can serve as a substitute. This is most evident in the
climate field: should a group of countries decide to implement
significant carbon taxes while their trade partners would abstain
from introducing them, a border adjustment mechanism would
serve both as a way to limit the risks of endogenous breakdownof the climate coalition, and as a way to avoid its members
losing out in international trade because they would be the only
ones to internalize climate externalities. But the potential role ofclubs as a substitute to a truly enforceable international orderhas more general value. For them not to result in incoherent
arrangements, they should be rooted in common principles andcould be served by common institutions.
7. Leadership. By itself, a scattered landscape of partial and rather
soft arrangements is unlikely to provide a response that iscommensurate to the magnitude of today’s collective action
problems. Leadership is indispensable to set priorities, mobilize
the institutions, arbitrate between divergent interests, and put
pressure on free-riders and rogue players. As things stand, nosingle country or entity can anymore provide this leadership
across the range of fields that must be covered. At the end of
the day what matters most is whether or not the major players,
starting with the US, China, the EU and other key regional
players, will be able to provide the minimum modicum ofleadership that will help trigger collective action.
Note: This paper builds on a lecture delivered at RIETI Tokyo on
Jan. 10, 2020. It draws on joint research conducted at the EUI in
cooperation with George Papaconstantinou. See below.
George Papaconstantinou and Jean Pisani-Ferry, eds. (2019),
Global Governance: Demise or Transformation?, European University
Institute, September
Jean Pisani-Ferry (2019a), “Can Economic Multilateralism
Survive”, Economic Affairs 39:3-24.
Jean Pisani-Ferry (2019b), “Collective Action in a Fragmented
World”, Bruegel Policy Brief 5, September 2019
Jean Pisani-Ferry holds the Tommaso Padoa-Schioppa Chair of the European
University Institute in Florence. He is a senior fellow at Bruegel, the Brusselsbased think tank, and a nonresident senior fellow at the Peterson Institute forInternational Economics.

COVER STORY • The World Trade System with the Covid-19 • 6

W

hat the Covid-19
Crisis Means for the
WTO Trading System
Author Kiichiro Fukasaku

By Kiichiro Fukasaku

Concerns Over the Functioning of the WTO Trading
SystemA yellow flag was raised to the World Trade Organization (WTO) on
March 12, 2020, one day after Covid-19 was declared as a pandemic.
Director-General Roberto Azevêdo announced that it would be nolonger feasible to organize the 12th Ministerial Conference (MC12) –the organization’s highest decision-making body – scheduled forJune 8-11 in Nur-Sultan, the capital of Kazakhstan. Then the WTO
decided to suspend all meetings until the end of April, disrupting thecritical phase of trade negotiations in the run-up to MC12. This wasfollowed by Azevêdo’s sudden announcement on May 14 that he will
step down on Aug. 31.
Coronavirus has no respect for borders. Sooner or later, allinfected countries have had to grapple with acute shortages of
essential supplies and protective gear for health professionals
working on the front lines, let alone life-saving ventilators for
hospitalized patients requiring intensive care. They have enforcedsocial distancing, lockdowns, and widespread closures to avoid viraltransmission and safeguard healthcare systems. The social andeconomic damage entailed will be unprecedented, as we must likely
wait for a vaccine or cure for the next 12 to 18 months. The burdens
fall heavily on those least able to carry them. As soon as the spreadof coronavirus is brought under control, they begin to phase out
containment measures and reopen their shattered economies.
According to the IMF’s latest World Economic Outlook published in
April, the global economy is projected to contract by 3% in 2020,
before growing by 5.8% in 2021 in its baseline scenario in which the
pandemic fades in the second half of 2020 and economic activities
are back to normal with strong government support measures.
But as the report acknowledges, it is extremely uncertain whether
post-pandemic global recoveries will be swift and strong. Much
depends on epidemiological pathways and human responses toeconomic reopening in the coming months. We should prepare for aworse scenario that global recoveries might be staggered andunbalanced, as some countries would be struggling more thanothers, due to a recurrence of an epidemic not seen since the great
influenza pandemic of 1918-20. Economic nationalism has beenflaring up around the globe during public health crises, despite an
appeal for global solidarity made by the director-general of the World
Health Organization (WHO) at the G20 Extraordinary Leaders’Summit in late March. What concerns us today in such a global
28 Japan SPOTLIGHT • July / August 2020

environment is the functioning of the WTO trading system tomorrow.

World Merchandise Trade During Public Health
CrisesThe novel coronavirus, which originated in Wuhan in NovemberDecember 2019, had spread very quickly both within and outside
China and exploded into a pandemic by March 2020. (The origin of
the SARS-CoV-2 virus that caused the Covid-19 pandemic has beendisputed, but we take note of the experts’ view as seen on https://
nextstrain.org.) The pandemic has exposed all infected countries topublic health crises, and then supply and demand shocks, driving
their economies into freefall.

Global Supply Chains Get Clogged
Since late March, the WTO has regularly updated a list of trademeasures implemented by members in the context of the Covid-19
crisis. This list points to two determining features of world trade
today. First, the number of temporary export restrictions on certain
medicines and medical devices is substantial and increasing. A
proliferation of export restrictions and a drastic fall in internationaltransport services have combined to get global supply chainsclogged for medical products. A Global Trade Alert report concludes
that “[t]he incoherence between national trade policies and medical
response threatens the lives of people at home and abroad, including
those of front-line health professionals” (https://www.
globaltradealert.org/reports).

Import Tariffs on Medical Supplies and Protective Gear
Remain High
Second, the number of temporary eliminations or exemptions ofimport duties on medicines, medical supplies, and ventilators is on
the rise – a welcome development. Imports of medicines are alreadyduty-free or subject to low rates in many countries. WTO data show
the average most-favored-nation (MFN) applied tariff on medicines is2.1%, with 72 members maintaining duty-free access (https://www.
wto.org/english/news_e/news20_e/rese_03apr20_e.pdf). This ispartly thanks to the WTO Pharmaceutical Agreement, a reciprocal
tariff elimination agreement (so-called “zero-for-zero initiative”)
concluded by major producing countries during the Uruguay Roundnegotiations. The current participants in the Agreement are Canada,
the European Union, Japan, Macao, Norway, Switzerland, and thehttps://www.jef.or.jp/journal/

COVER STORY 6

United States. Among other categories of medical products, trade in
medical equipment enjoys relatively low duty rates (3.4% on
average), as a substantial part of technology-intensive medical
equipment has been covered by the expansion of the Information
Technology Agreement (ITA) in December 2015. On the other hand,the average MFN applied tariff rate remains relatively high for
medical supplies (6.2%) and personal protective equipment (11.5%).
Table 1 shows the world tariff profiles of three specific products –diagnostic reagents (HS 382200), medical ventilators (HS 901920),
and hand sanitizer (HS 380894) – based on the WHO classificationreference for Covid-19 medical supplies at the six-digit level of theHarmonized System. As for the first two products, many countries,
rich and poor, maintain similar tariff profiles with duty-free imports
adopted by 81 out of 134 WTO members included in Table 1 fordiagnostic reagents and by 67 members for medical ventilators. On
the other hand, the world tariff profile for hand sanitizer is different:
only 36 members allow duty-free imports, while 16 members –mostly African countries – maintain high duties of more than 15%.
These developing members may wish to ramp up domestic
production under high import protection, but it raises the question ofwhether such trade protection lives up to their objectives.
TABLE 1World tariff profiles for 3 specificmedical products
HS 6 Digit Code382200901920380894

Tariff Range

Diagnostic
Reagents

MedicalVentilators

Hand
Sanitizer

Number of WTO Members per Average MFN Applied Tariff Band
15 < t2

1

16

10 < t <=15

1

3

22

5 < t < =10

18

18

17

0 < t <= 5

32

45

43

t=0

81

67

36

Simple Average of MFN
Applied Duties

2.7

3.3

7.0

Standard Deviation of
MFN Applied Tariffs

4.2

4.3

6.7

Maximum Tariff Rate

26.0

26.0

26.0

Source: Compiled by the author from WTO, Integrated Database (IDB) notifications (accessedon April 3, 2020)

Trade Locomotives Are Broken
According to the WTO report published in April, world tradevolume is likely to fall between 13% and 32% in 2020, depending on
two distinct scenarios, optimistic and pessimistic (https://www.wto.
org/english/news_e/pres20_e/pr855_e.htm). What trajectories world
trade will take during the second half of 2020 and beyond isanybody’s guess. Nonetheless, the WTO’s scenario analysis leads us
to anticipate that world trade after the pandemic is unlikely to return
to its previous trend, as in the case of the global financial crisis of
2008-2009. This time, world merchandise trade is likely to be muchless responsive to world GDP growth, due to disruptions in global
supply chains and a drastic fall in traded services, except for
information technology services. To this should be added that world
merchandise trade was already slowing or even falling before thepandemic hit major trading nations (Table 2). For example, world
import volume was showing negative trends in advanced economies
since November 2019. Similarly, the monthly growth of China’s
import volume was decelerating to register a negative growth of
7.3% in January 2020. Also notable is that the pandemic struck
China’s export juggernaut, pulling it down to a decline of 11.6% in
the same month. The export shock hit all emerging economies, witha fall of 4.3%. For both Latin America and Africa and the Middle East,
the trade impact of Covid-19 has been relatively mild so far, but it isexpected to show a bigger negative impact as the viral infection
continues. Therefore, trade locomotives are all broken this time.
Nonetheless, according to the latest data, China, and other Asian
economies were showing some early signs of recovery from theworst trade slump, which may reflect their different responses to the
public health crisis. It remains to be seen whether such trade
recovery will continue and spread to other regions.

7 Questions on the Future of the WTO Trading
System
WTO members are confronted with a broad set of questions, manyof which have been discussed over the past two years, such as at theG7 Leaders’ Summit at Charlevoix on June 8-9, 2018. The Covid-19
pandemic has added a sense of urgency, as well as some emerging
challenges. I will focus on seven questions to see whether the WTO
trading system can function as effectively as it should in thisextraordinary time.

Decision-Making and Procedural Guidelines
Decision-making by consensus is the modus operandi of the WTO
and its predecessor, the General Agreement on Tariffs and Trade(GATT). Members are obliged to meet through teleconferences
during the pandemic. Although the latest technologies enable themto do so, they also present many hurdles to be overcome forJapan SPOTLIGHT • July / August 2020

29

COVER STORY 6

TABLE 2

Trends in world merchandise trade(volumes, seasonally adjusted)
Regions/Countries*

percentage changes, month on month
2019m10 2019m11 2019m12 2020m01 2020m02 2020m03

World trade

0.4

-0.8

0.4

-1.6

-0.7

-1.4

World imports

0.1

-0.8

-0.2

-1.0

-1.7

-0.9

Advanced economies

-0.6

-1.7

-0.2

-0.1

-1.0

-3.1

US

-1.8

-1.4

2.8

-2.1

-1.9

0.3

Japan

-2.0

-1.6

1.1

-2.3

-8.7

13.5

heard criticism of the WTO that it has become a“litigation-centered” organization. Are WTO
members ready to move ahead with such newprocedural and decision-making arrangements inthe time of Covid-19?

Transparency and Notification

Enhancing the transparency of members’ trade
and trade-related policies is fundamental toEuro Area
-0.6
-0.6
-1.9
0.9
0.6
-7.6
sustaining an open and rules-based multilateral
Other advanced economies
0.7
-3.7
-0.7
0.8
-0.8
-3.4
trading system as embodied in the WTO
Emerging economies
1.1
0.6
-0.1
-2.4
-2.6
2.3
Agreements. At no time is this more critical than
China
2.6
2.0
0.1
-7.3
-3.2
6.2
during the pandemic. Based on notification by
Emerging Asia (excluding China)
0.6
0.8
-0.3
-0.6
-3.5
3.2
members and information obtained from other
Eastern Europe/CIS
0.3
0.6
3.2
-3.6
0.0
-2.1
public sources, the WTO Secretariat has created
Latin America
0.8
-2.3
-1.0
1.1
-1.5
-2.5
and updated a database of trade measures
Africa and Middle East
0.2
0.1
-0.5
-0.2
-0.1
-2.3
concerning the coronavirus-relevant medical andWorld exports
0.8
-0.9
0.9
-2.1
0.2
-1.8
other products, such as food. This database can
Advanced economies
0.6
-0.9
0.1
-0.4
1.0
-6.0
US
-0.4
0.5
1.2
-1.7
2.0
-4.9
assist members in their efforts to stand still and
Japan
-0.8
-1.0
0.9
-2.2
2.1
-3.4
roll back export prohibitions and restrictions thatEuro Area
1.5
-1.9
-0.3
0.3
1.0
-7.7
were imposed temporarily during the public health
Other advanced economies
-0.0
0.2
-0.2
-0.2
0.1
-4.7
crises. In the past, many members have tended to
Emerging economies
1.1
-0.9
1.9
-4.3
-0.9
3.8
leave notification obligations under the different
China
-0.6
-0.7
5.4
-11.6
-2.2
12.4
WTO Agreements unattended because of capacity
Emerging Asia (excluding China)
2.3
-1.0
2.1
-2.4
-0.3
0.7
constraints or for other reasons. Proposals have
Eastern Europe/CIS
-0.6
-2.7
-1.9
0.0
-1.1
-1.8
Latin America
0.0
-1.9
-0.2
-0.1
-0.8
2.3
been tabled to ameliorate such situations by
Africa and Middle East
4.3
1.8
-1.4
-0.2
0.2
1.3
allowing cross-notifications from other members,* Regional aggregates are computed with shares in world imports.
and in egregious cases, by imposing certain
Source: Calculated by the author from CPB World Trade Monitor database: https://www.cpb.nl/en/cpb-world-trademonitor-march-2020 (accessed on May 26, 2020)
penalties on members concerned. The WTO
Secretariat is being increasingly called upon toministers and senior officials from the 164 members to meetassist members fulfilling notification obligations and voluntary
virtually and take big decisions in a ministerial conference, which
submissions during the pandemic. Are current WTO staff andtakes place normally once every two years and lasts for several days
resources large enough to help members meet such transparency
involving many backdoor consultations and corridor meetings. Thisrequirements?
consideration leads us to anticipate that, as long as the coronavirus
Fairnessstays with us, the General Council will play a more important role
Fairness is one of the most important principles of the WTO
than ever, as it “shall meet as appropriate” at the level of
trading system. The Covid-19 pandemic has raised a few questions
ambassadors and other officials in Geneva, conduct its functions “inabout fairness in world trade today. First, as we discussed above,
the intervals between meetings of the Ministerial Council”, andgovernments have responded to public health crises by enforcing“establish its rules of procedure and approve the rules of procedure
export restrictions on medical supplies and personal protective
for the Committees” (Article IV: 2 of the Agreement Establishing theequipment, while at the same time amassing them for domestic use.
WTO ). A proposal for “Procedural Guidelines for WTO Councils andA global shortage of face masks, for instance, is a telling episode: aCommittees Addressing Trade Concerns” has been tabled to the
combination of export ban, hoarding and price gouging by some
General Council for adoption. It aims to streamline meeting
powerful countries has made it difficult for others to import sucharrangements, make deliberations more responsive to emerging
essential products at affordable prices. As a result, these medical
trade concerns, and resolve them informally at the level ofproducts have become scarce commodities everywhere. Current
committees without recourse to the formal dispute settlement
WTO rules, under the so-called general exceptions, provide broadmechanism (see below). This is intended to respond to the often30 Japan SPOTLIGHT • July / August 2020

COVER STORY 6

space for members to adopt restrictive trade measures necessary toprotect public health within their jurisdictions. However, export
restrictions and aggressive procurement practices arecounterproductive to the global fight against the pandemic, andcontrary to the spirit of solidarity proclaimed by G20 Leaders. WTO
members should consider rules for fair conduct of internationaltransactions based on the Covid-19 experience.
Second, governments have often used contingency protection –the mix of instruments, such as countervailing, anti-dumping andsafeguard measures, which are triggered contingent on certain
circumstances, such as subsidization, dumping and import injuries.
Countervailing and anti-dumping duties have been frequently applied
to protect domestic firms and workers in agriculture and certain
manufacturing industries, like iron and steel, from “unfair” foreigncompetition. This is another area of concern in the post-pandemic
economic environment, as governments are susceptible to domestic
political pressures for import protection arising from thosecoronavirus-affected industries that are suffering from evaporating
demand due to social distancing and prolonged lockdowns.
A third area of concern is the distortions caused by “non-market
practices” in which governments intervene to distort market
competition in favor of domestic firms by way of administrative
guidance and other directives. The Trilateral Initiative by the EU,
Japan, and the US, which began in December 2017, has been
instrumental in advancing discussions on industrial subsidies, stateowned enterprises and forced technology transfer. The US has
recently made a proposal, entitled “The Importance of Marketoriented Conditions to the World Trading System”, to the General
Council. How to deal with “non-market practices” in the WTO is an
important issue in the context of Covid-19, as government
intervention in resource allocation and economic management is on
the rise.

Electronic Commerce and Digital Trade
Affordable access to information and communication technology
is critical for people to work, communicate, and go shopping online
during the coronavirus pandemic. The digital way of our daily life islikely to continue even after the current crisis is over. This has two
ramifications for the future of the WTO trading system. One is that
WTO members must accelerate negotiations on a new plurilateralagreement on trade-related aspects of e-commerce, which was
kicked off formally at Davos in January 2019. A year later, thenumber of participating members has increased from 71 to 83,
representing over 90% of global trade (https://www.meti.go.jp/
press/2019/01/20200124004/20200124004-2.pdf). The success of
this negotiation is key to the credibility of the WTO itself, andespecially of a plurilateral approach to trade negotiations, often
referred to as flexible multilateralism. To be sure, e-commerce is not

new for WTO members. They agreed in 1998 to launch a “Work
Program on E-Commerce”, but since then the rulemaking in the
WTO, with the exception of the time-bound moratorium on customs
duties on electronic transmissions, has been lagging far behind thedigitalization of the global economy.
Another ramification is the urgent need for global trade rules
suitable for the 21st century, as the digital revolution is still in its
initial stage. Big Data, artificial intelligence (AI) and the Internet ofThings are likely to transform almost all manufacturing industries. A
case in point is the automobile sector that is finding itself amid major
technological and business transformations, widely known as CASE
(Connected, Autonomous, Sharing, and Electronic). Thanks to digitaltechnology, financial services are also in the middle of majortransformations. For instance, it has helped East Africa play apioneering role in providing mobile banking for those individuals
being denied bank accounts before.
Every country, therefore, has a big stake in WTO rulemaking on
e-commerce and digital trade. While certain issues involved arehighly political as well as economic, such as protection of personaldata, free cross-border data flows, prevention of forced data
localization, and prohibition of disclosure requirements for sourcecode and encryption keys, they are not insurmountable. What isfundamental to rulemaking in the WTO is to enhance transparency inmembers’ policies in the digital age and benefit from greater
economies of scale that global market operations can offer. For
example, forced localization of storage and data processing does notnecessarily increase data protection, as it exposes local data centersto the higher risk of cyberattack. Nor does it facilitate the distributionof information on a global scale, which makes it difficult to realize
greater economies of scale.

Development and Differentiation
Development constitutes a core element of the WTO trading
system. Yet, nowhere in the WTO Agreements is developing-country
status defined, except for the least-developed countries (LDCs) being
recognized as such by the United Nations. It is conventional that amember is permitted to self-declare its development status in the
WTO. This was perhaps not unrealistic 25 years ago when the WTO
was founded, but it is hardly justifiable today when the global
economy has become multipolar. The “developed-developing”
dichotomy in the WTO membership does not reflect this reality. Nordoes it help in negotiations on future trade agreements, which
include as an essential component provisions on special anddifferential treatment (SDT) for developing and least-developed
members.
To be sure, differentiation among developing members (other thanLDCs) has been incorporated into the WTO trading system. For
example, the Agreement on Subsidies and Countervailing Measures
Japan SPOTLIGHT • July / August 2020

31

COVER STORY 6

provides them with time-bound and income-based criteria for SDT
that have already lapsed. More recently, SDT has taken a new
formulation in the Trade Facilitation Agreement (TFA) which cameinto force in February 2017. The TFA allows developing and LDC
members to self-determine their timelines for implementing specificcommitments, which is in some cases linked to receiving technicalassistance and capacity-building support from the TFA facility. This
formulation provides a promising model for future WTO trade
agreements. Furthermore, in September 2018, the European
Commission made a proposal to modernize the WTO in whichdeveloping members other than LDCs were urged to “move awayfrom open-ended block exemptions toward a needs-driven andevidence-based approach” to providing SDT in future trade
agreements. The EU proposal also encouraged them to “graduate”
the current SDT entirely or in part. Similarly, the US made its own
proposal about certain criteria for graduation to the General Council
in December 2019.

Global Commons
WTO members can make a specific contribution to protecting
global commons: eliminate harmful fisheries subsidies. WTO
negotiations on fisheries subsidies received renewed impetus after
the adoption in September 2015 of the United Nations Sustainable
Development Goals (SDGs), with a specific reference to Target 14.6,
which sets a deadline of 2020 to (1) prohibit certain forms offisheries subsidies that contribute to overcapacity and overfishing,(2) eliminate subsidies that contribute to illegal, unreported andunregulated (IUU) fishing, and (3) refrain from introducing new such
subsidies, while at the same time recognizing appropriate andeffective SDT for developing countries and LDCs. Since then, WTO
members have invested huge political capital in these negotiations,as they are the only active multilateral trade negotiations in the WTO.
But the negotiations have been far from straightforward because
they must strike a delicate balance between sustainability
commitments and development concerns. Opinions have yet toconverge, among other things, as to whether to introduce a global
cap on use of fisheries subsidies in a new agreement with“comprehensive and effective disciplines”, set as a goal to reach by
MC12.

Dispute Settlement and Appellate Review
A functioning dispute settlement mechanism, including fair andeffective appellate review of legal matters related to panel reports, isessential to sustain the WTO trading system. Yet the Appellate Body
(AB) – the standing body for hearing appeals in the two-tier disputesettlement procedure – has ceased to function since Dec. 11, 2019
when it was unable to make a quorum due to the US blockage ofappointments of new AB members for more than three years.
32 Japan SPOTLIGHT • July / August 2020

Meanwhile, there have been two important developments. On the
one hand, the efforts to resolve this long-standing dispute throughthe informal process of consultations during 2019, which was led bya facilitator under the guidance of the General Council, have failed.
Subsequently, the director-general initiated high-level consultations
at the beginning of 2020, which were apparently running into alogjam. On the other hand, the EU and 15 other members have put inplace a Multi-Party Interim Appeal Arbitration Arrangement (MPIA),
which is a “stop-gap measure” adopted pursuant to the arbitration
procedure stipulated under the WTO’s Dispute Settlement
Understanding. The establishment of the MPIA reflects the fact thatmany members share the view that an impartial and independent
appeal mechanism is essential for the WTO’s dispute settlement
procedure to function, but it also highlights a cleavage that exists
between them and the US. The US ambassador to the WTO once
explained forcefully the country’s position at the Informal WTO
Ministerial Meeting in Davos on Jan. 24, 2020, by saying that “theAppellate Body is not a court and its members are not judges”.
However, the US has not yet tabled any concrete proposal to reformthe AB.
A recent move by the US to block the adoption by the Dispute
Settlement Body of the appellate and panel reports in the case of“United States – Countervailing Measures on Supercalendered Paper
from Canada” implies that the dispute settlement mechanism
remains in limbo without a functioning appellate review. Therefore, it
is not clear what remains to be done if the facilitator’s reform
proposal cannot be adopted at the General Council.

Preparing for the Next Crisis
Rebuilding trust in the WTO trading system is essential tosustaining global recoveries in the time of Covid-19. Many affected
countries have started to reopen their economies step by step, as asign that virus infections are becoming subdued. It is fundamental tokeep markets open and fair, as global businesses restore buoyancy.
At the same time, WTO members must prepare for the next crisis, acrisis of climate change, because the costs of inaction – higher
incidence of natural disasters related to climate change – would beunbearable to many. A small step for members to take in thisdirection is to restart plurilateral negotiations on an Environmental
Goods Agreement which have remained suspended since late 2016.
The Covid-19 pandemic indeed poses formidable challenges to G20
Leaders in restoring global trade health in the future.

Dr. Kiichiro Fukasaku is an international economist, working extensively intrade, investment, and development fields. His career includes various
professional posts at the GATT Secretariat (1983-90) and the OECD (19902012), before teaching at Keio University (2012-20).

COVER STORY • 1

Global Risks & Opportunities Under the “With-Corona” Global Order
The Fourth JEF-KRA Global Risk Symposium – Key Geopolitical
Developments in the Current Pandemic Situation
17:00-19:00 (JST), Monday 12 & Tuesday 13 October 2020

By Komatsu Research & Advisory

Dr. Keiichiro Komatsu

Sir Paul Collier

Professor Hassan Omari KayaThe Japan Economic Foundation (JEF) and Komatsu Research &Advisory (KRA) co-organised the fourth Global Risk Symposium toanalyse the current rapidly changing international climate from amultifaceted perspective. Given the pandemic, for the first time it washeld as an online conference (with simultaneous interpreters) overtwo consecutive days. Speakers joined from four countries: Japan,
South Korea, the United Kingdom and South Africa.

Mr. Nigel Inkster CMG

Dr. Dong Yong Sueng

The symposium was held under the Chatham House Rule toencourage frank discussion among the speakers and the audience.
An exclusive audience of 50 people including government officials,
business persons, researchers, scholars and media personnel
attended the event.
The following is a summary of the symposium produced with thepermission of the speakers.

Opening Remarksby Mr. Kazumasa Kusaka, Chairman and CEO, Japan Economic Foundation
Mr. Kusaka thanked the audience for joining the online symposium
and briefly explained JEF’s recent activities and the thinking behindholding the annual symposium.
When businesses actively operate globally, they may not be able to
make good business decisions unless they become sensitive to global
risks beyond business inherent risks. To address these challenges, it
is extremely important to understand the structure of risks and its
backgrounds. The top people from industry, academia and thegovernment are participating to discuss not only their areas ofexpertise, but taking interest in economy, security and geopoliticalrisks. Discussions are held to cultivate capabilities to grasp thingscomprehensively, to enable a holistic approach.
Otherwise, business communities or security experts will not beable to understand the other field and may take action in a one-sided
way with only partial knowledge.
This year, the theme of the global risk symposium is, what changes
is the global pandemic bringing. While we have been trying to keep it
4 Japan SPOTLIGHT • March / April 2021

under control, what does it mean to live “with-Corona”, to coexist
with COVID-19. How would the world move and what does it mean
for global risks, these are themes that will be covered in this year’s
symposium.
We hope to hear from each perspective, how to not only passively
but actively respond to the risks and opportunities even with thelimitations of “with-Corona”. While the COVID-19 pandemic is a clear
and present danger in front of us, we hope this symposium would be
able to contribute to improving our response towards the riskspresented by the coming global challenge through hearing how
world-class top-level practitioners and thinkers think through andtake action.

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

Guest Speechby Professor Yoriko Kawaguchi, Minister for Foreign Affairs (2002-2004), Minister of the Environment (2000-2002),
Visiting Professor, Musashino University, Fellow, Musashino Institute for Global Affairs
COVID-19 has upended the world for almost 10 months. The
economy, education, no field was free from the impact of COVID-19
and unfortunately the future is quite uncertain. The task given to me
today is to discuss the risks and opportunities for international
politics from COVID-19.
The international community was already facing a multitude ofproblems before the outbreak of COVID-19 and the subsequent
pandemic aggravated these issues. There were various frictions
associated with the rise of China, in particular, rising tensions
between the US and China in political, economic and military areas.
After the inauguration of US President Trump, the America-first policy
became very evident, Brexit and conflicts in Syria and other areas,poverty, deterioration in international co-operation, fragmentation ofinternational community, the lack of leadership, and the list goes on.
According to the poll by the US Pew Research Centre on 6 October
2020, which was conducted in 14 advanced economies, it shows alack of trust in leaders in world-leading countries which is very
unfortunate.
The fact that COVID-19 became a rapid aggravating factor in a way
cannot be helped because of the nature of the pandemic. The
pandemic countermeasures are mostly domestic, such as closing ofborders, and reducing dependency on foreign countries including
supply chains. As a reflection of the constraints on domestic politics,
diplomacy is also constrained for both the US and China and theycannot but take hardliner policies against each other. Having said so,
the problem is how to reduce the risk that has increased. The root of
the problem is in the difference in principles of governance between
China and countries including the US, Europe and Japan, such as therule of law, freedom of speech and democracy. Therefore, theimprovement of the situation is extremely difficult for the short-term.
Regarding the competing relationships between the two major
powers, the US and China, so long as the competition is healthy andbased on rules, it can be a stabilising factor from the perspective ofinternational politics, in comparison to a case where one hegemonicstate is taking the leadership. It is against the interest of Japan to havepoor relations with its ally and its neighbour, so what Japan needs to
do in terms of its role is to contribute to smoothe communication
between the US and China and make sure that there are no
misunderstandings between these two countries. It doesn’t mean thatJapan should be equidistant in its diplomacy; Japan needs to maintainsolidly the position of US ally but also support mutual understanding
between the US and China by understanding both countries better.
Another impact from COVID-19 on international politics is a greater
importance of international co-operation. The pandemic crosses
borders and thus the infections cannot be controlled without
international co-operation. The pandemic also will burden more on
the vulnerable in the international community; international assistanceand resource reallocation are therefore needed more than ever.
From the experience of the pandemic this time, we learnt that there
are risks and uncertainties that are not foreseeable and controllable.
Human beings must humbly coexist with the earth to survive. It is
important to achieve SDGs, strengthen international regimes, climatechange, biodiversity, infectious disease control and abolition of
weapons of mass destruction including nuclear weapons. We muststrengthen such international regimes. Regarding this point, thethinking of the EU reconstruction fund provides a useful reference.
Professor Kawaguchi believes that this suggests a possible role forJapan to take leadership to advance effective international
co-operation with likeminded countries. To fulfil that role, Japan must
maintain an international status respected by other countries, makeefforts to constantly reform, to energise the Japanese economy,
internationalise Japanese people and society, and to maintain anddevelop its soft power.
It is clear that now is not an abnormal time, and we cannot expect
to go back to pre-COVID-19 days and this is both a risk andopportunity. That is all the more reason why we have to take action to
use these opportunities to realise the desirable new normal. That is
our responsibility.

The Concept of this Symposium Explained by the Moderator
Dr. Keiichiro Komatsu, Principal, Komatsu Research & Advisory (KRA)
With regards to the concept of the symposium, the reason thetheme is “With-Corona” and not “Post-Corona” is that this COVID-19
is not going to be like SARS, there is not going to be a clear exit. With
this as the starting point, discussions on both risks and opportunities
will be held during this symposium. In previous years at the annual
symposium, the term “New Normal” has been used to explain thisphenomenon. Even before the pandemic there were issues, but withthis pandemic, some issues have accelerated while other issues have

newly arisen. We hope to hear some insightful hints from the
speakers.
On day 1, Sir Paul Collier, Professor from the University of Oxford,
is the first speaker with a talk about the implications of the pandemic
on capitalism and democracy versus autocracy, not just from
economics and politics, not just looking from a narrow theme, butfrom a broader perspective including philosophical points of view aswell as values.
Japan SPOTLIGHT • March / April 2021

5

The second speaker is Professor Hassan Omari Kaya from
University of KwaZulu-Natal in Durban, South Africa. The Western
healthcare system is not well developed in most African countries.
There was, therefore, a fear and expectation that if COVID-19 spreads,
the continent would be severely affected, with dead bodies scatteredacross the streets or patients with severe symptoms. However, that is
actually not happening. While different from the perspective ofindustrialised nations including Japan and South Korea, African local
communities have over many millennia developed their own
indigenous knowledge and traditional healthcare systems, whichperhaps have been working much better than expected. From thisperspective, the African continent may be able to provide somesolutions towards global challenges.
On day 2, the first speaker is Mr. Nigel Inkster CMG, IISS Senior
Adviser, and former No. 2 at the so-called MI6. Speaking of MI6, inJapan and elsewhere, we think of James Bond and he was actually inthat world. He specialises in China so we hope to hear about the
future US-China relationship, and he is also an expert on cybersecurity so that would be another theme we could hear from him.
Our second speaker is Dr. Dong Yong Sueng, who was a memberof the Council of Policy Advisors to the President of the Republic ofKorea as well as a member of the Council of Advisors on foreign andsecurity policy to the Blue House, the South Korean Presidential
Office. He is now the Secretary General of Good Farmers. He will betalking about the impact of the pandemic on the Korean peninsula aswell as the surrounding East Asia, not from a medical perspective but
from a comparative view of different political structures.
The symposium is held under Chatham House Rule to encourage
frank discussions.

Presentation Title: “Democracy vs Autocracy” in the Context of Tackling a New Crisis
Speaker: Sir Paul Collier, Professor of Economics and Public Policy at the Blavatnik School of Government, University of
Oxford and a Director of the International Growth Centre, and the ESRC research network, Social Macroeconomics
Note: This presentation was made in English and simultaneously translated into Japanese for the Japanese speaking audience.
Sir Paul Collier raised the question of “Democracy vs Autocracy” inthe context of tackling a new crisis such as the COVID-19 pandemic.
He started by explaining the three characteristics that a successful
society needs.
The first characteristic is a degree of social cohesion. It is possible
to have any amount of difference within the society as long as there issome overarching concept of shared identity, shared purpose, sharedunderstanding about how things work and don’t work, and sharedobligations. Social cohesion is enormously important in building
willing compliance not only for individual citizens but also for firms,
families and local communities around some common purpose andsome common understanding of the strategy that is needed. The
genius of social cohesion is a community in which people are able tohave a dialogue, a conversation between equals and can search
together for a common understanding.
The second characteristic is an ability to discover, the capacity tolearn as you go. The COVID-19 pandemic is an example of what iscalled in economics “radical uncertainty” where if you asked anybody
back in January “What should we do?”, the honest true answer was“we don’t know”. There was no knowledge of how to deal with
COVID-19, because nobody had ever had to dealt with it, it was
something new. Such situations are very common. There are two
massive global examples in the last 12 years; the global financial
crisis and now the COVID-19 pandemic. To find out what to do as
quickly as possible, you need a very different approach, from top
down.
When it is clear what to do, a hierarchical structure works, butwhen we do not know what to do, a hierarchical structure is very
dangerous because the top is inclined to claim that they know best
6 Japan SPOTLIGHT • March / April 2021

and insist everybody does the same thing, whereas if you do notknow what to do, what you need is experiments in parallel. For that itis necessary to decentralise, devolve the power of decision down tothe bottom of society and devolving the agency to try come up withsolutions in a team, and it is very useful because it merges two
different types of knowledge.
All good decisions in any context rest on the fusion between expert
knowledge and tacit knowledge. What is needed is to push therelatively shareable expert knowledge down towards the people, whileat the same time practitioners who have practical knowledge, which ismuch harder to share because it is particular to context and time andmore than often unwritten, try and push that practical knowledge up
towards the people at the top. By devolving a system, it not only
facilitates rapid learning but also creates a structure that empowers
the people on the ground and creates an active participatorycommunity dialogue.
The third characteristic of a successful society is that you needleaders who can be trusted. A trusted leader is not “commander inchief” issuing orders but a “communicator in chief”. In a situation likethis pandemic, what the leader needs to do is to communicate asense of common purpose; we all need to struggle to find out asolution to this problem; we all need to do our best. Since the answer
is not known, we must expect sometimes to fail and there is nodisgrace in experimenting and failing. In top down societies, there is aterrible fear of failing.
Professor Collier then applied this concept to the question of“Democracy vs Autocracy”. He pointed out that China is not a great
successful autocracy but that its remarkable success over the last 40
years is a result of previous investments in social cohesion and rapid

experiment built over 2,000 years and made worse by the recent
move to top down. The old emperors had responsibilities towards
citizens and the leader earned the Mandate of Heaven by working
towards a common purpose.
For 40 years, until recently China not only had this social cohesion,
but it also acknowledged that it did not have all the answers.
Repeatedly the Chinese leadership tried to build common goals,
typically objectives lasting over the next four years. The leadershipwould say that this is what we are trying to do, and then they
decentralised and experimented by sending young bright party
officials to regional governments and saying: “you experiment, you
try something”, and that created very rapid experiment in parallel andhence they learned from both failures and from successes. China hasrecently moved to a very top down centralized system and that has
actually amplified the COVID-19 problem. It took a long time for newsof COVID-19 in Wuhan to move up the system because people werescared of failure so there were delays in the first instance. If you arescared, you hide failure and do not report it.
In East Asia, in the face of COVID-19 Japan, Singapore, South
Korea and Taiwan all shared these features of having very strongsocial cohesion and trusted leadership and ability to build newcommon purposes very rapidly. In Western democracies, what was

happening over the last 40 years was actually a widespread
derailment of capitalism. Capitalism can work for everybody if there isgood public policy that enhances the innovations that capitalism
generates whilst compensating for those who lose out, so that people
still trust the whole system. In much of Europe and America that did
not happen and social cohesion was lost. There were huge new
spatial rifts, a big divergence between the successful metropolis andbroken provincial cities, as well as new educational divergence, a newclass system. The tragedy politically was that nothing was done about
this because the people losing out from the system also lost their
voice and it was no longer a community in dialogue. Insider groups ofthe successful did not even notice that the less successful were
suffering. Drawing on examples, Professor Collier then explained theneed for leaders whom the people listen to when the word “we” isused, instead of half the society saying, “you are not ‘we’, you are an
enemy”.
To conclude, Professor Collier pointed out that what we need is abalance within hierarchy. We need leaders who at times would set
rules for us and say: “This is what you need to do”. But we also needan adaptive community because so much of the knowledge of what to
do is at the bottom of the society, not at the top.

Presentation Title: Africa Building on Indigenous Knowledge Systems in Global
Challenges: the Case of COVID-19
Speaker: Professor Hassan Omari Kaya, Ph.D. in Sociology of Development and International Political Economy, Directorof the DSI-NRF Centre in Indigenous Knowledge Systems, the University of KwaZulu-Natal
Note: This presentation was made in English and simultaneously translated into Japanese for the Japanese speaking audience.
Professor Hassan O. Kaya pointed out the fact that the impact of
the COVID-19 pandemic in Africa has been less, compared to otherglobal regions, and that this demonstrated the efficacy of African
indigenous knowledge systems and the philosophy of people working
together as a community.
There is a tendency to look at Africa as a country, while of course
Africa is a continent covering 30 million square kilometres withdiverse indigenous knowledge systems based on over 2,000 distinct
languages and cultures, 54 countries and a population of over 1.2
billion. Throughout colonisation, Africa’s diversity was looked at as aproblem of development, while in the context of African indigenous
knowledge systems (AIKS), cultural diversity is an asset. This isbased on the holistic and multi-transdisciplinary nature of the AIKS
which advances the complementarity and democracy of knowledge
systems in combating global challenges such as COVID-19 pandemic.
Professor Kaya defines African indigenous knowledge systems as
bodies of knowledge, technologies and innovations, belief systems
and value systems which communities in diverse cultures andecosystems produce in order to sustain life. In contrast, westernways of looking at knowledge tend to be limited to explicit knowledge
that can be written, while African indigenous knowledge is often tacitand exists in different ways such as oral knowledge, artistic, spiritualforms, and is more holistic. For instance, when looking at the issue ofland, in African indigenous societies, land is not something you own,
because there is a symbiotic relationship between nature and humanbeings. They depend upon one another.
The COVID-19 pandemic is a global phenomenon that affects all
sections of society. It is not only biological but also has social,economic, environmental, cultural and political dimensions. Thismeans that it needs a complementarity of knowledge systems forsustainable solutions. In most African societies, indigenous forms ofknowledge on traditional medicines and healing systems are used.
These are not only about treating the biological aspect of health, butalso involve the holistic dimensions of health embedded andarticulated in indigenous languages and philosophies. For instance, inSouth Africa, there is an African indigenous philosophy called“Ubuntu”, which promotes solidarity, compassion, human dignity,
consensus and respect, to mitigate common challenges.
What colonialism and apartheid did was to destroy a sense ofconfidence among African people towards their own cultures,
including value and knowledge systems. The concept of building on
the indigenous, as articulated in this presentation, is not necessarily
Japan SPOTLIGHT • March / April 2021

7

what is traditional but whatever the African people themselves in theirdiverse cultures and ecosystems consider to be an authentic
expression of themselves. Building on the indigenous creates
confidence and thereby active citizenry. The success of African
communities in dealing with the pandemic shows that African
indigenous knowledge systems can contribute towards the global
pool of knowledge in order to tackle global challenges. What COVID19 is showing is that when Africa, like other regions in the world
including East Asia and Europe, builds on the indigenous andmobilises grassroots knowledge and innovation systems, homegrown philosophies and indigenous languages so people become
actively involved in mitigating global and community challenges. It
creates a common purpose in which communities build a sense ofconfidence and self-reliance in all levels of societies.
Contrary to Western thought, that before colonisation African
people had no social institutions nor history, African historical andarcheological testimonies such as the remains of the ancient city ofGede in Kenya, Great Zimbabwe, the Great Pyramids, Timbuktu andother historical landmarks, show that Africa is the cradle ofhumankind and is where the oldest record of scientific andtechnological achievements are located. These historicalachievements could have only been guided by highly sophisticatedAfrican indigenous socio-economic, political, spiritual and cultural
institutions developed by African people’s themselves. However, postcolonial African countries have not managed to leverage these
Indigenous Knowledge Systems, including historical scientific andtechnological achievements and resources for sustainable
development.
For instance, the African continent is positioned in the strategic
global navigation routes, surrounded by the Atlantic Ocean, the Indian
Ocean, the Red Sea and the Mediterranean Sea. Recently there is thefree and open Indo-Pacific Economic zone, which is not just an
economic zone but also a cultural zone that connects the Pacific, theIndian Ocean, both in Africa and in Asia. Therefore, African countries
can harness the rich potentialities of the blue economy, agricultural,
wildlife, mineral and human resources, cultural and linguistic
diversity, together with its historical legacy and heritage assustainable developmental assets in the global economy.
The important thing to recognise is that these cultural diversities
are not characteristics of African countries only, they exist
everywhere, within the UK, Europe, Japan, Korea and China. Each has
its own diversity of indigenous knowledge, value systems, which
communities use in all aspects of life to mitigate against different life
challenges.
Building on the indigenous and advancing complementarity ofknowledge systems as an asset paves the way for: (i) creating highlevel multilateral platforms and strategic partnerships that advanceinternational human understanding, mutual cooperation, social andepistemic justice; (ii) development of strategic programmes andpartnership to produce unique products and services for competitive
advantage in the global market economy through the interface of
AIKS and resources with other knowledge and technological systems;(iii) building a new generation of global human capital conversant in
the significance of Indigenous Knowledge Systems for international
peace-building, sustainable and dynamic global market economy; and(iv) develop global educational programmes to promote knowledge
and awareness on Africa’s rich cultural diversity and historicalcontribution to the global pool of knowledge.
Professor Kaya concluded that when diversity is seen as an asset
these could be harnessed for the benefit of humankind and to mitigate
global challenges.

Presentation Title: B ritish Perspective of the Impact of the Pandemic on US-China
Relations and its Implications
Speaker: Mr. Nigel Inkster CMG, Senior Adviser to IISS and former Assistant Chief and Director of Operations andIntelligence at the British SIS (also known as MI6)
Note: This presentation was made in English and simultaneously translated into Japanese for the Japanese speaking audience.
Mr. Inkster CMG opened his talk by explaining that it is probably too
early to say how the change brought by the COVID-19 pandemic will
manifest itself over the long term, while what we can say with greater
confidence is that this pandemic has exercised a catalytic effect on
trends that were already apparent. He then explained, from a British
perspective, the impact of the pandemic on US-China relations, whichwere already undergoing a period of significant deterioration – fromstrategic alignment to one of strategic competition. This was a trendthat was driven by China’s rising power, which the US perceived as achallenge to its role as global hegemon, and the competition has beenplaying out in the realms of trade, finance and technology but always
with the potential to turn kinetic. He then elaborated on the role
8 Japan SPOTLIGHT • March / April 2021

technology, in particular information and communications technology(ICT), have played in the way this relationship has developed.
He explained how of particular concern for America was China’s
technology ambitions and the Chinese state’s efforts to reengineer the
global internet, and to become the standard-setter of a gateway
technology, fifth-generation mobile technologies (5G), massively
investing in the areas of advanced technology including quantum
computing, quantum encryption, and biotechnology. He pointed outthat US concerns were a complex mixture of economic, national
security, and geo-political and boiled down to a conviction thattelecommunications networks critical to national security and national
prosperity should not be in the hands of a company so closely linked

with and susceptible to control by the Chinese Party-state. US
concerns about China’s national ICT champion Huawei were further
enhanced by a set of scenarios by Australia’s signals intelligenceagency, which showed that in the event of a conflict with China,
reliance on Huawei-enabled technology would present serious
challenges.
Meanwhile, the pandemic tipped already tense Sino-US relations
over the edge and eventually led to the US national security complex
banning any companies anywhere in the world seeking to sell to
China large technologies based on US intellectual property, by
requiring them to first obtain a licence from the US Department ofCommerce. The ban on the sale of the advanced microchips on which
Huawei is still dependent for its 5G systems and which China isunable to manufacture for itself is potentially very consequential.
The corona virus pandemic came at a time when globalisation had
peaked and the pandemic highlighted the vulnerabilities of global
supply chains that were highly efficient but not resilient and in which
certain countries, particularly China, had become single points offailure in the supply chain. Already before the Pandemic, companies
had begun to address these concerns by moving some manufacturing
away from China to achieve greater resilience and to escape an
increasingly restrictive environment within China.
This process is what has been termed “The Great Decoupling” andit has economic, financial and technology components. It is very hardto predict how this process plays out because the US and China,technologically speaking, have become so closely entangled that acomplete untangling seems difficult to imagine. But the general
direction seems to point towards an eventual technology andeconomic decoupling involving a global bifurcation in which otherstates will find themselves pressed to choose sides, as the UK wasrecently forced to do. But it is clear that the measurable costs of any
such decoupling would be high and the intangible costs even higher.
While China’s contributions thus far in these technologies have notbeen in the area of foundational science but rather in the developmentof existing technologies, it seems highly probable that in due course
the focus and resources China is devoting to hi-tech programmes willproduce genuine innovation.
The challenge we are facing in the technology area is between alaissez-faire approach and an all-of-nation approach. It is the sort ofdilemma that Britain faced in the early stages of World War I, when it

rapidly became clear that the laissez-faire approach to munitions
production was no match for the all-of-nation approach to warfare ofImperial Germany. It remains to be seen how the US will respond tothis, whether it might actually move in the direction of developing
something like an industrial strategy fit for the 21st century. We could
end up with a kind of technology bifurcation, in which some countries
are using one model of communications technology and the others a
different one, the Chinese one. There are questions here of technicalcompatibility and the risk that actually countries in the middle areforced to reduplicate and actually operate both sets of technology
with all the additional burdens that this composes.
Mr. Inkster CMG concluded his remarks by asking the question ofwhat is to be done. He noted that it is hard to make predictions
because the progress of technologies is hard to anticipate but in geopolitics, the shift of power from West to East is happening and the US
appears to be losing its appetite for exercising the role of global
hegemon but is not yet ready to relinquish that role, nor is China yet
ready to assume it. We could find ourselves in the “Kindleberger
trap”, a reference to the global situation in between the two World
Wars during which the US had implicitly assumed the hegemonic rolepreviously exercised by Britain but then failed to exercise it, thereby
giving rise to an international climate of instability that resulted in
World War II. Even if the US does continue to play the role ofhegemon, its allies are going to have to learn to take greater
responsibility for their own security, including in the realm oftechnology, and are going to have to adapt to a reality in which great
power contestation conditions all facets of life.
He highlighted the need to acknowledge that we live in a world ofuncertainty by referring to his own former profession. He pointed outthat the profession of intelligence is about managing uncertainty. He
shared that he always used to say to young colleagues entering theorganisation: if you like a world coloured in black and white this is not
the profession for you, because we only ever deal in grey. We areconstantly operating in a situation where we don’t know what theanswer is, where we have to make pragmatic judgments based onevidence, and where conviction, zeal and ideology are anything otherthan helpful. This is something that all countries are going to have tolearn to adapt to, to become comfortable with uncertainty, torecognise its inevitability and for governments to be honest with their
populations in terms of acknowledging that this is the case.

Presentation Title: The Impact of the Pandemic on the Korean Peninsula and East Asia
Speaker: Dr. Dong Yong Sueng, former member of Council of Policy Advisors to the President of the Republic of Korea aswell as a member of Council of Advisors on foreign and security policy to the Blue House; Secretary General of Good
Farmers (NGO)
Note: This presentation was made in Korean and simultaneously translated into English and Japanese for the non-Korean speaking
audience.
Dr. Dong Yong Sueng started his talk by pointing out three kinds ofchanges brought about by the COVID-19 pandemic which were likely

to stay even after vaccines and drugs are developed to tackle it: 1)
The expansion of non-face-to-face communication, including using IT
Japan SPOTLIGHT • March / April 2021

9and AI; 2) Changes in the Global Value Chain (GVC), turning from a
global supply chain to a more regionalised one; and 3) Strengtheningof central government functions. He then explained the impact of thepandemic on the Korean peninsula and on East Asia.
Dr. Dong then examined the situation of North Korea before andafter the pandemic. Pre-pandemic, after the Kim Jong-un
administration was established in 2012, foreign relations weresevered and the focus was on the development of nuclear weapons
until November 2017 when they declared the completion of a nuclear
programme, together with the improvement of relations with South
Korea and the US. Meanwhile, between 2012 and 2017, there were
two major changes taking place domestically: 1) Reform and 2)
Opening of the country. Reform was known as the socialist corporate
responsibility management system and ownership changed fromstate ownership to a more communal ownership. This operational
policy has been clarified in the April 2019 revision of the constitution.
In order to open the country, four central special economic zones and
23 regional economic development zones were designated in order toattract foreign capital. Furthermore, in 2016, they created andadvanced a five-year economic development strategy for the first timesince the Cold War ended. In this way, the North Korean policies werevery ambitious. However, after the collapse of the February 2019
Hanoi summit between North Korea and the US the policies changed
dramatically and North Korea declared that if the US would not be
moving in the direction it wanted, it would be moving to a new path.
Until then North Korea was moving with the improvement of relations
with the US in mind, but after the collapse of the summit, it shifted to“frontal breakthrough strategy with the might of self-reliance”. Since
then, North Korea severed relation with the US and South Korea,
strengthened relations with China and Russia and switched to aninternal self-reliance strategy. They also declared that nuclear
weapons are no longer on the table for the negotiations advocated forthe sophistication of nuclear weapons.
After the pandemic started, in terms of non-face-to-facecommunication, North Korea closed its national borders, imposed a
voluntary ban on assemblies, and mask wearing became mandatory.
In terms of changes in the Global Value Chain, North Korea used the
pandemic to their advantage and accelerated the self-reliancestrategy. Meanwhile, it was acknowledged that the very ambitious
five-year economic development plan was a failure and it was
declared that a new five-year economic development plan is to be
implemented starting in 2021.These are developments that may
suggest a switch to self-reliance strategy; instead of globalisation,
more of a regionalisation or centering on its own country. Dr. Dong
also explained the attempts to solve the energy problem, foodsecurity under self-reliance, swift recovery from natural disasters aswell as North Korea’s attempts to combat the weakening market
functions.
Dr. Dong then elaborated on South Korea’s efforts under the Moon
Administration to reopen dialogue with North Korea throughproposals including joint epidemic prevention, proposals to start fromsmall trade, and exploring leads for the declaration of the end of thewar. However, North Korea has consistently not responded and with
10 Japan SPOTLIGHT • March / April 2021

the pandemic response and the dramatic shooting incident of a South
Korean government officer in the Yellow Sea, there is a slowdown of
the reconciliation momentum. There is concern in South Korea that it
will be forced to choose sides between the US or China, or risk
alienation. He also noted the fact that some point to the stubborn
attachment to the pre-Hanoi Summit methodology in spite of thechange in environment after the collapse of the Summit.
When looking from the East Asian point of view, there was a world
centering around China before the 15th century and it turned to aWest-centric society after the beginning of that century, when Admiral
Zheng He of the Ming Dynasty went on eight overseas expeditions toconnect with the Eurasian continent, but because of domestic issues
this was not successful. 50 years or so later Europeans adventured
into East Asia. The concept of “the Pacific” probably did not exist atthat time, however, and Columbus tried to reach China through the
Atlantic resulting in the discovery of a new continent. From the 16th
to 20th century, China, South Korea and Japan remained regional
powers. Europe was trying to connect East and West and a Western
centric world order was established. In the West, Europe did not try
to go through the Eurasian continent to enter the East because there
was the Ottoman Empire, so Europe had to advance through the
Pacific. In the 20th century, after World War II and the Cold War, it
has become a US-centric world. Today China, though dormant for a
few centuries, is once again expanding and trying to enjoy thebenefits of economic advances through opening markets andtechnological advances. China is trying again to reconnect thecontinent, to achieve what it tried in the 15th century. It also has theambitious objective of venturing out into the Pacific. With China trying
to expand both continents and oceans, the US is trying to check andcurb those moves.
Dr. Dong noted that after the pandemic started, with non-face-toface and border closures, every country is heading towards more
self-reliance and more nationalistic or authoritarian approaches.
These countries are likely to show solidarity and this could connect
the Middle East and then Europe, leading to an acceleration of
conflicts between the US and China and a new geopolitical East-West
Cold War may be witnessed in East Asia, leading to the Thucydides
trap. The pandemic is likely to increase the power struggle between
the US and China, but it is the countries in the middle who may beable to prevent both sides from going into conflict and minimise
tension by playing the role of mediator.
After the talks, panel discussions among all four speakers were
held with questions from the moderator and the audience.

Komatsu Research & Advisory (KRA) was established by Dr. Keiichiro
Komatsu in March 2005 in London as an independent think-tank and advisory
service, specialising in business promotion and country risk analysis. Its clients
include governments, government agencies, private-sector companies (bothmedium and large companies) and non-governmental organisations.

COVER STORY • 4Interview with Matthew P. Goodman, Senior Vice President for Economics, Center for Strategic& International Studies

T

he Biden Administration’s New
Foreign Policy – a Key Geopolitical
Question in the Pandemic

By Japan SPOTLIGHT(Interviewed on Jan. 12, 2021)

Main Pillars of Biden
Administration’s Foreign
Policyand economics are very closely linked.
Foreign policy in the past has been too
focused on external issues and politicalissues and traditional security concerns like
JS: We are in a somewhat
nuclear proliferation or terrorism; these arecomplicated world, and geopolitics
very big problems, but the new approachand economics cannot be
under the Biden administration is that someseparated. It is impossible toof those policies have been taken in the past
imagine that one can have truly
without enough consideration for whatstable economic relations with any
American people are really worried about,nation in the absence of stable
including economic concerns. From thatpolitical ties. It is also true thatflows first the “build back better” policy,
domestic political stability is very
which is the term for their economic andimportant in deciding on anysocial plan at home, which has four broad
foreign economic policy. In thispillars: re-energizing American manufacturing
regard, facing high geopoliticaland innovation, investing in infrastructure,risks and stronger populism in theinvesting in the caring economy, andMatthew P. Goodman
United States, how would you
addressing issues of racial injustice. All ofdefine the main pillars of the incoming Bidenthese are top priority before turning to foreign policy issues. Of
administration’s foreign policy?
course, foreign policy starts from the first day and so they will haveto immediately focus internationally. I do think that there will be
Goodman: The first point is that the Biden administration’s firstmuch more focus in Biden’s foreign policy on issues of democracy,priority is going to be the Covid-19 pandemic and dealing with thathuman rights and political stability around the world; that will be
problem as a health problem, and as an economic problem. That ismore central to their foreign policy than during the administration ofgoing to be the top priority, and that is the reality that they are going
President Donald Trump.
to be dealing with before foreign policy. That will shape theadministration for the first 100 days or so. The second point is that
JS: There is particular interest in foreign policy vis-àvis China. Would democracy and human rights be thethe Biden administration has defined foreign policy priorities in terms
main pillars in dealing with China as well?
of what they call a “foreign policy for the middle class”, and what
they are trying to do is to link traditional foreign policy interests
Goodman: I think they will be a pillar, and it will be a more important
more clearly with domestic economic and social and other concerns.
pillar than it was under Trump or even under President Barack
This is more than just a soundbite or a headline. They are
Obama. The Biden approach to China begins with agreement with thegenuinely committed to starting the foreign policy conversation by
Trump perspective that China is a leading strategic competitor of thelooking at what American workers’ problems are, what their needs
US, and so it starts with strategic competition but then looks at theare, what their desires are, and then deciding what foreign policy
elements of that competition and how to address it.
interests should be pursued to support Americans at home. I believe
Democracy and human rights will be a much higher priority, butthat is a genuine impulse of President Joe Biden himself and hisother elements will still be there: there will still be trade, technology,
security advisor Jake Sullivan, who first coined the term “foreign
and traditional foreign policy elements such as security. Then there
policy for the middle class”. That is the broad mindset that they arewill be questions of climate change and global health responses,
going to be bringing to foreign policy and in that sense foreign policy
https://www.jef.or.jp/journal/

Japan SPOTLIGHT • March / April 202119

which provide areas for cooperation. All of these elements will bepart of the China policy, but yes, democracy and human rights will bea much more important pillar of the China strategy.
JS: In the domain of trade policy in dealing with China,

perhaps encouraging structural economic reform
could be much more effective in achieving smooth
relations between the two countries.

Goodman: Yes, it would be better for China and for the US, andindeed for Japan, if China moved back to its previous path ofdomestic economic reform and opening. However, the Biden
administration is going to take the view that this is really a decision
for China, and outside forces – whether it is the US or Japan or othercountries – are going to have relatively little ability to influence
China’s decisions about its own reform path. Of course, the newadministration will work on those issues, particularly those that
directly affect American interests, such as where Americanbusinesses are denied market opportunities or treated unfairly.
Where intellectual property is being stolen or forced technology
transfer policies are being pursued by China, I think the Biden
administration will pursue those issues. Where the Chinese
government is using heavy subsidies of its state-owned or statedirected champion companies, the Biden administration will pursue
those issues, but I don’t think that the focus will be as heavily on
Chinese internal structural reform as previous administrations,
including the Obama or George W. Bush administrations, which hadvarious dialogues to try to address those internal issues. I don’t thinkthat Biden will be so enthusiastic about those issues, and there will
be more focus on strengthening American competitiveness vis-à-vis
China, while the Biden administration will also push backaggressively to prevent China from stealing technology or engaging
in economic coercion.

New US Foreign Policy in East Asia
JS: East Asia is the principal interest for many

countries in terms of geopolitics today. Besides
China, perhaps North Korea is a major source ofconcern. What do you think will be the foreign policy
taken by the Biden administration in trying to achieve
peace on the Korean Peninsula?

Goodman: I am not an expert on nuclear issues, but my generalanswer is that it will be a high priority for the Biden administration.
The threat of North Korea’s nuclear capability, combined with an
improved missile capability, is a huge regional and global concern. In
addition to Antony Blinken, who will be the secretary of state, the20 Japan SPOTLIGHT • March / April 2021

deputy secretary of state will be Wendy Sherman, who was very
involved in the Korean negotiations in both the Obama and Bill
Clinton administrations, so it will be a high priority for her. The Biden
administration will consult very closely with its East Asian allies,
notably Japan and South Korea. I think they understand theimportance of having both of those critical allies, and also Australia
and semi-allies like Singapore, supporting this policy. Incidentally, I
think that the Biden administration will be very sensitive to specificJapanese domestic concerns like the abductee problem.
JS: In particular, perhaps the new administration

would expect Japan and South Korea relations toimprove.

Goodman: It is clear that the US interest in Asia centers on a good
relationship among all its allies and particularly between two criticalallies, Japan and South Korea. The tension between the twocountries today is very unhelpful to American interests, and I think
there will be a strong effort to improve relations, although I don’t
think the Biden administration will play a brokering role but willrather encourage the two countries to try to resolve their differences,
obviously over history and technology transfers and other concerns.
Especially if we are going to deal with the North Korea threat, weneed to have Japan and South Korea on good terms and working
together. Similarly, to deal with China we need Japan and South
Korea to work together, so this will be a high priority.

Climate Policy Affecting All Policies of Biden
Administration
JS: Switching to the global environment, the Biden

administration has already committed to rejoining theParis Agreement, and climate policy will be very
important for this administration. Is it correct toassume that will even be embedded in foreign
relations and trade?

Goodman: I would agree that climate change is a number one
priority for the Biden administration globally, and in foreign anddomestic policy it will be an issue of key focus. Former Secretary ofState and Senator John Kerry, who was very involved in the Paris
negotiations, has been appointed as special international climate
envoy, and former environmental protection agency (EPA) head Gina
McCarthy has been appointed as domestic climate envoy. There will
also be climate issues in our general foreign policy towards East
Asia; for example, I think energy policy in the region will be much
more focused on clean energy, much more discouraging of fossil
fuel-based development in the region, which is a potential point oftension between the US and Japan.
Obviously, climate change and sustainability will be a central
element of the “Build Back Better” plan when it comes to building
domestic infrastructure and investing in innovation and clean energy.
It is going to run through everything that they do in the Biden
administration. One of the interesting questions is how they aregoing to make all of these different elements work together, because
it is somewhat unusual to have such a senior person like John Kerryin the White House specifically focused on international dimensionsof climate change. On the other hand, it is also unusual to have aformer Cabinet secretary in the White House in charge of domestic
climate issues, so how those two will work together and how they
will work with the agencies involved – the State Department, theEnergy Department – will be key.
Incidentally, the Energy Department will be headed by Jennifer
Granholm, who is the former governor of Michigan, which is ofcourse where a lot of US automobile production is based. Governor
Granholm has been very focused on electric vehicles, and I think she
was picked because of her interest in those issues. Traditionally, theremit of the US energy secretary is to protect the American nuclear
weapons supply, and to clean up nuclear problems. That is theirmain focus, but I think the appointment of Governor Granholm is asignal that the Biden administration wants her to play a critical role inclean energy and climate policy.
There are many other players throughout the government who
will be involved in this issue at some level. For example, Pete
Buttigieg, the secretary of transportation, if confirmed, will be very
focused on sustainable infrastructure and transportation, so there
will be many players. One of the questions I have is, will these people
be able to work together in a way that is effective and efficient andachieves real progress on these issues? Based on my experience
working in government, I am a little concerned about this, because
there are many big personalities. I should also mention Brian Deese,
who is going to be the director of the National Economic Council. He
also has a background in working on environmental, social, andgovernance (ESG) investment, and so he is very interested in theseissues. Treasury Secretary Janet Yellen, while a central banker bybackground, is very interested in climate finance. How these diverse
players will work together is a big question in my mind.
JS: We are particularly interested in the linkage

between this new environment policy and bilateralenergy collaboration. The US-Japan energy
partnership could be very important for the twonations. Would this bilateral energy collaboration
likely reflect this change of US environmental policy,
with a wider range of renewable energy sources in
addition to natural gas and nuclear energy?

Goodman: Yes, I think so. I don’t have any inside information aboutthat specific issue, and I am not sure that the Biden transition teamhas focused on that question yet. However, I would expect that it will
be a high priority for bilateral relations and globally to have that
dialogue continue; I think that the emphasis will shift from thetraditional focus on fossil fuels to renewable energies.
Frankly, I think also there may be some pressure on Japan tolessen its dependence on fossil fuel – coal in particular – in order tochange trade patterns between the two countries, and to discourage
Japan from financing overseas coal plants. There may be a different
dynamic between the Biden administration and the administration ofJapanese Prime Minister Yoshihide Suga on those issues, and it will
sometimes be a little uncomfortable for Japan. Suga has committed
to net zero emissions by 2050, and that is an ambitious objective; I
think that Biden’s interest in macro terms is in pushing in a helpful
direction for Japan’s own ambitions or targets, but I imagine there
will be some friction or difficulty in coordinating and negotiating thespecific elements of that bilateral energy cooperation. It is going to
be an important and constructive, but also somewhat difficult,negotiation.

Trade Policy, Though It May Not Be the First
Priority
JS: Moving to trade policy, the priority of the new

government is on domestic structural economic
reform. Trade policy may not be the first priority;
however, the WTO dispute settlement should be
improved to prevent chaos from ensuing. In thatregard, would it be possible for the US to contributeto the restoration of the malfunctioning WTO disputesettlement by stopping preventing the WTO from
appointing new members of the appellate body?

Goodman: I don’t have any specific information or insight on thatquestion, but first let me validate your basic premise, which is that
trade policy is not going to be an early priority for the Biden
administration, as they are going to be much more focused on
domestic economic policy. Even when they start engaging morestrategically on trade agreements, they are going to have a very
different approach to those issues. However, trade issues are notgoing to wait for one or two years for the Biden people to figure out
their approach.
The most immediate WTO question is the appointment of a new
director general. I think there are at least three big WTO issues thathave to be resolved pretty soon. One is the new director general;another is major negotiations on fishing will have a deadline, butthey will be facing a WTO ministerial meeting in June. Then, theJapan SPOTLIGHT • March / April 2021

21

appellate body/dispute settlement issue because it is heavily
problematic right now. The good news is that the designated US
trade representative, Katherine Tai, is very knowledgeable, competentand experienced and understands those issues very well.
On the specific question of the appellate body, I don’t know what
the Biden administration’s approach is going to be; I think it will bedifferent from the Trump approach, as they will understand the valueof an effective dispute mechanism, including an effective appellate
body system. Bob Lighthizer really didn’t believe in the WTO disputesettlement approach because it limited the sovereignty of the US insome way. Even the Obama administration had some real complaints
about the appellate body and the dispute settlement issue and wastrying to fix those issues. The Biden people will also want significant
reform of the dispute settlement system. Whether they will
immediately appoint a new judge I am not sure. Philosophically I
think they would want the body to function, but they might use asleverage the absence of a quorum to force serious reform.
JS: Regional FTAs are of course tools to achieve tradeliberalization, but at the same time tools to achieve asort of geopolitical stability. In that sense it is a kindof foreign policy as well as economic policy. How doyou think the new administration will consider the
RCEP or CPTPP in the Asia-Pacific region? China has
already announced its interest in joining the CPTPP,
so we are curious about the US response to thismaneuver.

Goodman: Honestly, I think that the China maneuver is just symbolicand strategic, not real. I don’t think China is likely to have a serious
interest in joining the CPTPP at the level which existing members
would expect on issues of state-owned enterprises and issues ofintellectual property, subsidies and other issues. I think it will bedifficult for China to reach that standard, and I don’t think that Japanand other partners – Australia, Singapore – are going to water down
the requirements just to get China in. I don’t think it is realistic, but
symbolically it was interesting that China indicated that interest, andwhen you combine it with the conclusion of the RCEP, which is thebiggest regional trade agreement that the US is not part of, thecompletion of that together with this kind of feint, or fake move, by
China into the CPTPP has definitely got the attention of people in
Washington and has focused the strategic players of the Biden
administration interested in East Asia and Indo-Pacific policy onfinding a way to respond to those developments.
The problem lies in an inherent and real contradiction in Biden’s
foreign policy; they really want to re-engage with allies in Asia andthey really want to confirm a strong American commitment to theregion in all respects – diplomatic, security, economic – and they
22 Japan SPOTLIGHT • March / April 2021

definitely want to hedge against China’s increased power in theregion. On the other hand, they are very reluctant to go quickly into
big trade agreements as we discussed before. There is a strong
resistance to moving fast into big trade agreements, especiallysomething like the TPP. That is a kind of tension, a contradiction orforces moving against each other. That is something that the Bidenpeople are going to have to resolve, and I think it is going to be quitedifficult.
I actually think that Biden himself is a little more focused on thegeostrategic part of that story and understands the importance oftrade and agreements like the TPP as a tool to advance our strategicinterests in Asia more than some people on his team. There aremembers of his Cabinet and his immediate advisors who are more
skeptical about those arguments and definitely very reluctant to do
trade agreements. I think Biden might be a little more willing to takerisks on trade, but I don’t think it is going to be his top priority. Theinteresting thing I am watching is what Biden will do in the run-up to
the APEC summit in November 2021. New Zealand will be hosting
the APEC leaders meeting and there will be an East Asian summit aswell, and as that meeting gets closer, there will be pressure on the
White House to come up with a big strategy for Asia, and that has toinclude a credible economic pillar and a credible trade pillar. If the
Biden administration does not want to rejoin the TPP, or join the
CPTPP, then it has to find some alternative strategy on trade, and I
think the best they will try to offer is some sectoral agreements, sayon digital trade or on maybe other elements of the TPP that are lesscontroversial, where it is easier to get an agreement, for example on
subsidies or state-owned enterprises. Maybe they will try to pursue
some new bilateral trade agreements although that is very difficult
also. Possibly a new phase two agreement with Japan, although I
think that is unlikely, and perhaps with Vietnam or the Philippines(but not under President Rodrigo Duterte, I think). This is a big
tension: between the desire to be involved strategically in Asia –needing a trade policy to be credible as a strategic player in Asia –but on the other hand, not wanting to do big trade agreements. I
think there is a conflict there which Biden will have to resolve before
he goes to APEC.
JS: There are concerns over the new rules for digitalproducts. On such urgent issues, should plurilateralagreements be achieved as quickly as possible inlight of the speed of technological progress?

Goodman: I think there are different elements involved. Digital is a
big subject that covers many issues. There are rules on data flows
across borders, and there is definitely an impulse in the Biden team
to work with Japan and other partners in the region to try to advance
those rules. There are rules in the TPP, rules in the USMCA (the new

NAFTA), and there are rules in the US-Japan bilateral digital deal,
which are good. There is also APEC, which has done work throughCross-Border Privacy Rules (CBPR), and I think the Biden
administration may try to integrate all of that work with Japan,
Singapore, Australia and other partners to try and come up with a
new package.
At the same time there are serious concerns about technology
transfer, which is a related but slightly different issue. I think there isa strong interest in the Biden administration to work with partners in
Europe and Asia to try and ensure that we control sensitive andcritical technologies, and I think there will be a strong effort to try to
work with allies like Japan and also European allies. One of the
Trump administration’s successes has been to strengthen theCommittee on Foreign Investment in the United States (CFIUS)
investment screening tools, and Japan and Europe have also
strengthened their rules, encouraged by the Trump administration.
Export controls also have been strengthened in the US and Japan,
and I think there is more work to be done there.
Then, research collaboration – there is a big concern in Japan andthe US about technology and ideas leaking through universities. For
all of these topics there will be a strong impulse in the Biden
administration to work with our allies and partners, and there arealso interrelated questions about supply chains. Huawei is the target
now, but there are other questions around critical supply chains
where there will be a strong desire to work with allies and partners toensure that these supply chains are secure and, frankly, notdominated by China. I think there will be an interest in working withJapan and other allies on digital infrastructure, working together tobuild infrastructure to provide telecommunication services. The
Japan Bank for International Cooperation and the US Development
Finance Corporation have been working together with theAustralians, including through the Blue Dot Network, which is anidea to build high-quality infrastructure. A lot of this is aimed at adigital “One Belt, One Road”. There is a whole portfolio of issues inthe technology or digital space on which the Biden administration
will want to work with Japan and other allies.

Strengthening the Indo-Pacific Region
JS: A re-strengthened alliance would seem to be a key

issue for Biden’s foreign policy. Would the IndoPacific region be one option for such a
re-strengthened alliance in Asia?

Goodman: The “Indo-Pacific” terminology was created by Japan andthen adopted by the Trump administration. It was a little
controversial at first, and there are still questions about it. I am
worried about India, because I don’t think it should be in the room

when we are talking about economics. When we are taking aboutmaritime security or other rules and norms, OK, but when we aretalking about trade, investment, even digital economy, I am nervous
having India in the room, because I don’t think India believes in free
and open trade and investment, so I personally don’t like India being
part of this.
I think the Biden team will be very committed, and National
Security Advisor Jake Sullivan has already used the term “IndoPacific”. They might not use “free and open” but instead change thatto “secure and prosperous Indo-Pacific.” I know this might worry
some people in Japan in terms of the approach or focus, but actually
I think it means that they want to focus on the ultimate goal, which issecurity and prosperity in this important region.
On a related issue, I think the Biden administration will continue
to also pursue the Quad with India, Japan and Australia as a security
initiative. There is no question that the Biden team intellectually
understands the importance of the Indo-Pacific; they understand theimportance of a region where there are many critical issues,
especially the rise of China, the issue of North Korea, maritime
security challenges, and health challenges.
My sense is that the Biden team’s passion is transatlantic, andthat bridging our differences with Europe is an equally high priority.
A lot of the key players in the new administration are focused on
Europe, Russia and the Middle East rather than Asia. That is mypersonal view, and it is a little hard to prove or provide hard
evidence, but my instinct is that they are going to be most energetic
about trying to reconcile with Europe. When the European Union
announced that it was going to reach this investment agreement with
China – the CAI – we saw Jake Sullivan tweeting, “The Biden
Administration will welcome a chance to talk to our European friends
about our shared economic concerns with China.” So it was a kind of
hint that we don’t want Europe to move too fast to negotiate or finish
this deal. We want to talk to Europe about China and about Asia, so
in my view the new adminstration will have more interest in talking
as a group like the G7 countries or even a slightly broader group of
democracies about these issues. Having a strong Europe policy does
not mean a weak Asia policy or vice versa – the two are not mutually
exclusive, and I think they want to integrate both elements. But there
is a strong passion and energy that they want to devote to improving
US-EU relations.

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

Japan SPOTLIGHT • March / April 2021

23

COVER STORY • Digital Technology Will Create a New World After the Global Spread of Covid-19 • 1

5Interview with Dr. Kei Sakaguchi, Professor at Tokyo Institute of Technology

G – a Technology to Realizea “Super Smart Society”

By Japan SPOTLIGHT

Commercial use of 5G started in Japan in April 2020. The cellular communication system has been
updated twice since 2000 when 3G service started, namely 4G in 2010 and 5G in 2020. With 5G, we canachieve ultra-high speed, ultra-reliable and low latency, or/and massive connectivity. What kind of services
would 5G be able to realize?
Dr. Kei Sakaguchi of Tokyo Institute of Technology and dean of the Tokyo Tech Academy for Super
Smart Society, talks about the “Super Smart Society” of our future.
(Interviewed on Feb. 28, 2020)

Self-Introduction

3G, 4G and 5G started with 3GPP Release 99,
a standard specification of 3G released in
1999. 4G was released in 2008 with a
JS: First of all, could you pleasestandard specification called Release 8, andintroduce yourself briefly?
5G’s standard specification is called Release
Sakaguchi: I am an outside director of IT
15 that was released in 2018 (Chart 1).
company ORO and a consultant of Fraunhofer
Although there is a drastic change ofHeinrich-Hertz-Institute, HHI, as well as aperformance from 3G to 4G and 5G, a gradualprofessor at Tokyo Institute of Technology.
update of the systems has been carried out
My specialty is wireless communication
around once a year. A system design isengineering and I am working on system
formulated on the basis of what needs to be
design of wireless communication systems.
pursued at the next generation and theWe need this work around only once every 10
technological seeds to be provided. The mostyears and as such very few experts are
crucial innovation in the case of 3G was toworking on it. Meanwhile, there are many
enable international roaming, having made it
companies producing systems based on thepossible for a domestic cell phone to be used
design or providing services for a system.
internationally. With 4G, we achieved a multiDr. Kei Sakaguchi
Those companies are in the category of themedia data communication. New services
information and telecommunication industry, including mobiles, andcame into existence one after another with 4G. For example,
in Japan its market scale is the largest among all industries, larger
watching and listening to videos, collaboration with a cloud system,
than those of the commerce (retail and wholesale) or real estatenavigation by using map applications, and so on.
sectors.
With 5G standardized in 2018, we will achieve improved
performance of communication characterized by the following
metrics: “ultra-high speed”, “ultra-reliable and low latency” and5G Explained“massive connectivity”. Growing attention is focused on what kinds
JS: The telecommunication system of cell phones orof services will be born with the arrival of a 5G with significant
smartphones has been updated to 3G and then 4G
improvement of performance.

and now 5G, whose service for commercial use is tostart in April 2020. Could you please tell us about
each system’s characteristics?

JS: Could you tell us how much impact 5G will have

Sakaguchi: The updated mobile communication systems known as

Sakaguchi: The maximum data rate of 5G will achieve 20 Gbps

4 Japan SPOTLIGHT • May / June 2020

on telecommunication in comparison with 4G?

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

COVER STORY 1

CHART 1

History of cellular networks?

10 Gbps• Video chat
• Cloud storage• GPS navigation
100 Mbps

384 kbps• International• Mobile internet• Wi-Fi hotspot

3G• Voice call
• SMS

4G

5G
• 3GPP Rel.15(IMT2020)• mmWave HetNet• 3GPP Rel.8 (LTE)• MIMO-OFDM• 3GPP Rel.99 (IMT2000)• WCDMA

2G • GSM/PDC

13 kbps• GMSK/π /4-QPSK

1990

2000

2010

2020

Source: Kei Sakaguchi, Tokyo Institute of Technology(giga-bits per second), which is more than 100 times faster than thatof 4G (Table). In other words with 5G, a video content of a two-hourmovie can be downloaded within a second. Moreover, the user
experienced data rate with 5G might be about 1,000 times faster thanthat of 4G, since 5G will introduce small-cell base stations where thenumber of connected devices per base station is smaller than that of
4G. In addition, the communication latency of 5G will achieve 1 ms
(millisecond), which is 10 times shorter than that of 4G. The shorter
latency is very important to realize mission critical services such as
automated driving. Furthermore, the maximum number of devices
TABLE

Specifications of 5G
LTE
(4G)

IMT 2020(5G)

Data rate

100 Mbps

20 Gbps

Latency

10 ms

1 ms

Connectivity

10,000/km2

1,000,000/km2

Note: LTE: Long Term Evolution, IMT: International Mobile Telecommunication

Source: Kei Sakaguchi, Tokyo Institute of Technology

connected to 5G will achieve 1,000,000/km2, which is 100 times
larger than that of 4G. It is noted that the ultra-high speed andmassive connectivity are exclusive. However, there are a lot ofrequests to support massive connectivity even with a lower data rate
especially in IoT scenarios such as in smart agriculture.
JS: What distinct technological innovations can beachieved by 5G with this ultra-high speed
communication?

Sakaguchi: Let me talk about electromagnetic waves first. Both radio
waves issuing from cell phones or smartphones and optical waves
issuing from lighting equipment are electromagnetic waves. With
lower frequency, their wavelengths will be longer and reach distantplaces; with higher frequency, their wavelengths will be shorter andbecome light with a frequency exceeding 3 THz. Light with shorter
wavelengths cannot reach beyond a barrier due to the shadow it
casts. This difference creates a different usage of electromagnetic
waves, depending upon frequency. Electromagnetic waves withrelatively lower frequency are used for telecommunication in ships or
airplanes or AM radio by taking advantage of their capacity to reachdistant places.
Meanwhile, wavelengths affect the size of receiving equipment. We
need a large antenna to receive waves of longer length. In the case ofa cell phone, as it is important for this to be connected and also to be
Japan SPOTLIGHT • May / June 2020

5

COVER STORY 1

small, its length and frequency for use is limited. So far, we havebeen using a wave around 2 GHz with a 15 centimeter wavelength fora cell phone. But with 5G it is possible to use higher frequency
waves with far greater traffic capacity. This is a significant
technological breakthrough. The higher the frequency, the more
information the electromagnetic waves can transfer. In 5G wecombine the existing frequency waves and the higher frequency
waves which has never been done so far and achieve bothconnectivity and ultra-high speed in mobile telecommunication. This
is what we call heterogeneous cellular networks. Namely, lower
frequency used in 4G supports connectivity, while higher frequency
introduced newly in 5G supports ultra-high speed data
communications.
JS: With 5G services starting, what services should becommercialized at the earliest opportunity?

Sakaguchi: I think services that use augmented reality (AR) will becommercialized at the early stage. For example, with AR when you
watch sports in a stadium, you can have the athletes’ information orwhat has happened in the game so far in a part of your field of visionby using a wearable terminal. Or, with navigation services using AR,
you can have geographical information in a map in a part of yourfield of vision without looking at a map application on a smartphone
fixed on a bicycle or the screen of a car navigation system.
5G has been developed for the purpose of enhanced entertainment
during the Tokyo Olympic and Paralympic Games 2020, as well as
providing a wide range of services including enhanced security forthe benefit of visitors. Initially the areas receiving such services will
be limited, but will be expanded later.
JS: What kind of services would be available in the

more distant future?

Sakaguchi: A smartphone’s display is currently palm-sized. With atelecommunication speed a hundred times higher than now, we will
be able to have a scope of view of 100 displays on a smartphone’s
screen. This would enable us to achieve mixed reality (MR) wherereal space and virtual space are combined in our field of view. Thus,in business operation spots, you will not have to look at a manual
instruction book while proceeding with your work. In education
venues, virtual training and learning would be possible. The MR/AR
terminals for use will be smaller and lighter, and wearable terminals
equipped with a camera, display, microphone and speaker will be put
into practice. In a 5G network, a picture you take can be uploaded toa network and analyzed by AI, and the result will be shown to you
6 Japan SPOTLIGHT • May / June 2020

with low latency and thus you can see the analysis in real time.
With such technology, for example, you would be able to operate arobot in a remote place. You would not have to get on a tractor on
your own on a farm. On a construction site, you would not have to
get on a machine to operate it. There would be a variety of remote
operations or virtual ones at medical and caregiving venues.
5G is also expected to contribute significantly to development of
automated driving cars. We need to enhance safety to achieve this.
There will be some occasions when some part of your driving area
would be out of your view, such as turning at an intersection or
parking in your garage. If cars equipped with 5G become prevalent, a
number of sensors in these cars will replace your eyesight toenhance safety with the collected information on the surrounding
traffic. With not only your own car’s sensors but also nearby cars’sensors or the surrounding information collected by 5G set on astreet, you could make a decision instantly based upon this collective
information and your blind side would be reduced and safetyenhanced (Image).
Another distinction of 5G is the availability of private 5G which will
be introduced in local areas for private businesses. With theintroduction of private 5G into sports stadiums, commercial facilities,
construction sites and factories, its use will be accelerated.
Tokyo Institute of Technology plans to introduce it in the 2020
academic year.
JS: What are some examples of services to beprovided by private 5G?

Sakaguchi: One example would be automatic parking in a parking lot
IMAGE

How safety of automated drivingcars can be enhanced
LiDAR
sensormmWave V2V/V2X

Dynamic
HD mapSource: Kei Sakaguchi, Tokyo Institute of Technology

COVER STORY 1

at a commercial facility, such as a department store. Valet parking
services in hotels can be replaced by this automatic service provided
by private 5G. Stopping a car at a designated spot, your car will be
automatically moved to a parking lot, and when you leave the hotel
your car will come to you automatically. We define such a limited
space of wireless telecommunication as private 5G.
JS: Judging from your examples, 5G would seem tohave a greater impact on businesses rather than
individuals. 5G is expected to contribute toproductivity with expanded use of ICT, but would thishave a negative impact such as a possible increasein unemployment?

Sakaguchi: It is true that the business needs for 5G would be verylarge. Whether new job opportunities would be born, or whether you
would have more leisure time with changes in work style due to 5G,
will depend on yourself.

What a Super Smart Society Will Look Like
JS: What would this Super Smart Society achieved by

5G look like?

Sakaguchi: At the moment, smartphones are limited in use, enabling
us to access information in cyber space and receive it. But we are
now moving towards a Super Smart Society where remote control ofmachines or automated driving or telemedicine will be seen with thecompletion of a framework of connecting five components, i.e.
sensors collecting information, a local database, an actuator forcontrol, a mobile edge computing (MEC) for decision in a physicalspace, and Big Data (BD) and artificial intelligence (AI) in cyber
space. The three main distinctions of 5G, namely ultra-high speed,
ultra-reliable and low latency and massive connectivity, are used toconnect these five components by satisfying their different
requirements. In other words, 5G is an enabler to realize a Super
Smart Society (Chart 2).
In the domain of mobility, there are services emerging that havenearly been put into markets. For example, in April 2020 automateddriving bus transportation starts and demonstration experiments arein progress for promoting practical use of an automated driving taxi
to be realized within two or three years. Toyota has also announced aplan to develop land in Shizuoka Prefecture at the end of 2020 tocreate a “connected city” with the introduction of automated drivingcars. There, we expect new businesses to be born and new services
to resolve the issues of an aging society.

CHART 2

Technology realizing Super Smart Society• Cyber-physical system consisting of AI, database, sensor, MEC and actuator• Wireless communication network connecting each entity (a variety of requirements
to be fulfilled by 5G)
Cyberspace
Big Data + AI
Physical Space
Database(Map)
Ultra-high speed andlow latency (5G)

Model

Data

MEC
(Decision)
Control
Actuator

Massive connectivity (5G)
Sensor(Camera)Ultra-reliable andlow latency (5G)

Source: Kei Sakaguchi, Tokyo Institute of Technology

Japan SPOTLIGHT • May / June 2020

7COVER STORY 1

JS: What are the main concerns in realizing a Super

Smart Society?

Sakaguchi: We call the gap between the people capable of using ICT
and those not capable of doing so a digital divide. In the future, we
see a “digital gap” being born. While our smartphones only enable
us to access information now, in a future Super Smart Society,depending upon your skill in taking advantage of the variety of
information, you will be a winner or a loser in your working life. In
this light we will see a large inequality in standards of living or job
opportunities. For example, whereas some are obliged to work within
the constraints of time and venues as before, with 5G some will beable to do their job connected with human networks in Tokyo whileliving far from the city, such as in a resort place like Hawaii, sincewith the use of 5G you can do your work in a remote place from yourcompany.
JS: How can we reduce such a “digital gap”?
Sakaguchi: I think it will be important for all generations to learn
about new digital technology. We call it “open education”. Thatwould reduce the “digital gap”.

Developing Human Resources
JS: Who will be the human resources leading a Super

Smart Society?

Sakaguchi: I think we need to develop human resources who will be
not only knowledgeable about robots or AI but also experts increating combined systems that work well in the physical life
domain, such as automated driving, smart manufacturing, etc. Good
progress has been achieved these 10 years in human resource
development in the fields of data science and AI. Meanwhile, in thenext 10 years we will need to develop human resources who canunderstand both the physical and cyber domains and think about
how digital technology can be applied to our daily lives and lead theresearch and development for such applications. We are planning toenrich our education programs for this purpose in the next 10 years
at Tokyo Institute of Technology.

program for Super Smart Society” (WISE-SSS) starting from April
2020 (https://www.wise-sss.titech.ac.jp/). This will offer a consistentacademic program at both Master’s and Doctoral level. We adopt“open education” and make it online, and thus anybody regardless ofage or workplace could learn from this program. What we call theindustry-academia alliance between universities and private businesshas not necessarily been proceeding very closely, but we will need tostrengthen the links between education and R&D to promote learning
about a Super Smart Society. For this purpose, we have founded theSuper Smart Society Promotion Consortium and pursue an open
platform for simultaneous promotion of open education andinnovation. Currently, more than 40 partners have joined thisconsortium (https://www.sss.e.titech.ac.jp/).
There are not only private businesses and public researchorganizations but also local governments such as Ota Ward in Tokyo
or Kawasaki city are participating in this consortium. For example, in
Ota Ward where the population is increasing, they are planning towork on ideas like a city with automated driving or a flying taxi. In
Kawasaki, workers in the industrial zone are facing significant aging
and they need to think about how they can find their successors andhow their technical expertise can be transferred to the younger
generation. The Hiroshima prefectural government is now searchingfor a more efficient way to conduct evacuations in the event of
natural disasters like typhoons and is trying to raise the humanresources to find solutions for such issues.
As a crucial part of this education program, we will soon, in the2020 academic year, introduce private 5G on the campus of Tokyo
Institute of Technology and create a learning environment where astudent can physically experience automated driving and the newservices accompanying it as well as learning about them. So far wehave not had any education venue for learning holistically about
automated driving, as the lectures on automated driving were divided
into several courses – studies on machines, electrical engineering,system control and computing technology – in our university. Our
new education program will create a venue where students can learn
holistically about technology and acquire the knowledge necessary toachieve a Super Smart Society.

JS: Do you have any specific human resource

development plans?

Sakaguchi: Yes. We have a special human resource development
program called the “World-leading Innovative & Smart Education
8 Japan SPOTLIGHT • May / June 2020

Written with the cooperation of Naoko Sakai who is a freelance writer.

COVER STORY • Digital Technology Will Create a New World After the Global Spread of Covid-19 • 2Interview with Taro Shimada, Corporate Senior Vice President & Chief Digital Officer of Toshiba
Corporation, President & CEO of Toshiba Digital Solutions Corporation, CEO & Representative
Director of Toshiba Data Corporation, Board Chairman of ifLink Open CommunityC

PS Technology Creates aSociety Sharing the Benefitsof Big Data

By Japan SPOTLIGHT
On Feb. 3, 2020, Toshiba Corporation established its data business subsidiary, Toshiba Data
Corporation. This company aims at turning all kinds of collected physical data available today through IoT
into usable data by the Cyber-Physical System (CPS) for the benefit of the whole of society. With theadvance of the Fourth Industrial Revolution, Big Data obtained by IT will be available to all people. How
they can equally share its benefits is a key question in realizing a good digital society.
Japan SPOTLIGHT interviewed Taro Shimada, corporate senior vice president and chief digital officer ofToshiba Corporation, president and CEO of Toshiba Digital Solutions Corporation, CEO and representative
director of Toshiba Data Corporation, and board chairman of ifLink Open Community.
(Interviewed on March 11, 2020)

Introduction
JS: Could you please introduce

yourself briefly?

of Toshiba Digital Solutions
Corporation and Toshiba Data
Corporation. I recently added board
chairman of ifLink Open Community to
my resume.

Shimada: I joined ShinMaywa
Industries, Ltd. in 1990, and worked on
JS: In Germany they are very
keen on promoting Industry
aircraft design for Boeing and
4.0 with the introduction of
McDonnell Douglas for around 10
smart factories. I have heard
years. In my last assignment I wasthat Japan has been
involved in the design of ancooperating with them.
amphibious aircraft, the US2, formarine rescues, which was adopted byTaro Shimada
Shimada: China also has very strong
Japan’s Maritime Self-Defense Force.
momentum. It looks as though China is doing everything Germany
Then I moved to another American company, Structural Dynamics
proposed, and at one time it even looked as if China’s
Research Corporation (SDRC), and eventually became CEO of its
implementation was more advanced, even though the original ideas
Japanese subsidiary. SDRC was a rapidly growing enterprise selling
all came from Germany. Japan, however, seems to stick to its own
software, such as a 3-dimensional computer-aided design system,
way of doing things, the “Japanese way” if you like. I am very
and it was acquired by Siemens AG, a German company, in 2007. In
concerned about that, worried about Japan’s Galapagos syndrome.
2010, I became CEO of one of Siemens’s Japanese subsidiaries,
Siemens Product Lifecycle Management (PLM) Software Inc., andthen in 2014 I had an opportunity to work for Siemens headquarters
Business Model in Industry 4.0
in Germany where I worked with the principal promoters in Germany
JS: Industry 4.0 will have a great impact on society.
of Industry 4.0.
You are advocating for the ideal of a digital society as
I came back to Japan in 2015 as senior executive and director of“a world of links among diversified groups andthe Digital Factory Operation Department at Siemens Japan. I joined
people benefitting from Big Data as a common
Toshiba in October 2018 at the invitation of its CEO, Nobuaki
asset”. Would that mean your business model will
Kurumatani.
make the categories of B2B or B2C meaningless?
As corporate senior vice president and chief digital officer ofToshiba, I oversee the group’s overall digitization. I am also the head
https://www.jef.or.jp/journal/

Japan SPOTLIGHT • May / June 2020

9

COVER STORY 2

CHART

The solution: RAMI 4.0 – the Reference Architectural Modelfor Industry 4.0
RAMI 4.0 is a three-dimensional map showing how to approach the issue of
Industry 4.0 in a structured manner.
RAMI 4.0 ensures that all participants involved in Industry 4.0 discussions
understand each other.

Graphics © Plattform Industrie 4.0 and ZVEI
Source: Federal Minstry for Economic Affairs & Energy

Shimada: I believe that companies that do not embrace the conceptof B2B2C will have a very difficult time. Recently, successfulcompanies like Amazon make profits in B2B through information
obtained from B2C. Those who limit their businesses to a certain
category will be left behind the trend.
JS: As 5G is starting for commercial use, there will bea massive amount of data under transaction at highspeed with increased data issuing from digitalproducts. What kind of changes will happen tosociety with this technology enabling the transfer ofdata from a physical product like an automobile orhome electric appliance to cyberspace?

Shimada: There is a blueprint for this and realizing the world of
Industry 4.0, Reference Architecture Model Industry 4.0 (RAMI 4.0)
(Chart). This is a three-dimensional map with three axes: a hierarchyof levels, a lifecycle value stream, and layers. In Industry 3.0, it was
not possible to communicate beyond the levels. For example, you
could not use your smartphone to get data from a fluorescent lamp
because they were in different levels of the hierarchy. In Industry 4.0,
everything is connected directly. This is realized by the
10 Japan SPOTLIGHT • May / June 2020

Verwaltungsschale, referred to as the administrative shell in English,
which serves as the standardized communication interface. Many
see this as the key to accomplishing the objectives of Industry 4.0.
In a scale-free network, we see what is called the percolation
phenomenon. This comes from the fact that when water is subject toenough pressure it vaporizes and disperses instantly. The Internet isa scale-free network. A thing or an act on the Internet is diffusedworldwide in the same way, almost explosively. The expansion of
GAFA is a good example of this. In a world where everything isconnected directly, the percolation phenomenon is a powerful force.
That is what Toshiba Data Corporation is aiming for with its “Smart
Receipt”.

“Smart Receipt” – Toshiba Data
Corporation’s Core Project
JS: You are also CEO of Toshiba Data Corporation, aToshiba data business subsidiary. What is yourproject called “Smart Receipt”?

Shimada: The idea of the “Smart Receipt” was nurtured in theaftermath of the Great East Japan Earthquake disaster of March 11,

COVER STORY 2

2011. With serious shortages of materials in general, there was also
a shortage of paper for receipts for cashiers. They wondered if they
could issue an e-receipt. That question was the starting point of our
project. Toshiba Tech Corporation developed the project andintroduced “Smart Receipt” to some retail businesses in 2015. My
company, Toshiba Data is now trying to expand the business inearnest in Japan.
Through sales promotion campaigns, we are now seeing
significant increase in uptake of “Smart Receipt”. We are at a point
where 57.1% of consumers at shops promoting the “Smart Receipt”
program are applying for it. For campaigns that use paper-based
receipts, the uptake rate is only around 5%. Shops can consider
customers that use “Smart Receipt” as those who are always
interested in them and their sales items, and can notify them of theirsales campaigns when they are in the shops. When we surveyedusers opinions of receipts, we found that 69% of respondents think
paper receipts should be eliminated and 91.5% of them would beready to use an e-receipt. Very few would stick to paper receipts, as
the print on a receipt of heat sensitive paper fades as time goes by.
It is very easy to use a “Smart Receipt”: download the application
program to your smartphone, get stores using “Smart Receipt” toscan its ID, and then you can use “Smart Receipt” there. You can use
it as a loyalty card with the store’s point system, and if you also
register cash card information in “Smart Receipt”, you can makecashless payments. This saves time at the cashier. You can use“Smart Receipt” for proof of purchase for medicines as well, and forsimplifying application procedures for health insurance.
If we were to connect and analyze the information of a large
number of retailers, we could offer more services with “Smart
Receipt”. For example, it would be possible for a liquor shop torecommend to a customer who has bought a fish in a fish shop the
specific Japanese sake that best suits it. With such an expanded
network, it would make it possible to realize connections between
producers and consumers. It would be even possible for the buyer ofthe fish to identify the fisherman and for the fisherman to get toknow what kind of dish was eventually made out of the fish. Such
possibilities are hidden in this “Smart Receipt” project.
We do not yet know the full potential of “Smart Receipt”. One idea
is to take advantage of the data of purchases recorded in “Smart
Receipt” in medical consultations. During a health check, you may be
asked to complete a health survey. In responding to a question like,“How many times do you drink alcohol a week?” you may tend tounderestimate the number. But by using the objective data recorded
in your “Smart Receipt”, your doctor would be able to make a more
appropriate medical judgement of your health. Not only on thequestion of alcohol but also on the question of meals, more objective
data could be provided for a doctor, who could then give good advice
to avoid excessive consumption of salty food, for example.
I am sure we can use the percolation phenomenon to create a
network, and for that reason some of our business partners haveasked us to contract with them to give them a monopoly of the datafrom the network. However, we believe in the utility of a symbiosis
among all the beneficiaries of the system, and we are not thinking
about giving any company exclusive access to the data obtained
from the network.
JS: If you do not provide your business partners withyour data exclusively, can you expect their sincere
collaboration in promoting the use of the data in awide range of business?

Shimada: If we have 100,000 shops taking part in the “Smart
Receipt” system, we will get information on purchases with a valueof around 40 trillion yen. If you think about this scale, it is notdifficult to understand that our business partners understand themerits of sharing our data and cooperating with us. I would also likeour system to provide merits for early collaborators. Unfortunately,
the proportion of e-commerce to total commerce in Japan is only
7%, and around 90% of the total commercial transactions are not yet
linked to the cyber network. We would like to increase the percentageof e-commerce, and we believe that taking advantage of the datacollected from physical goods connected with the Internet could
contribute to promoting social welfare in Japan.

Challenges in Promoting Use of Big Data
JS: There would be two issues with taking advantage

of private information such as customer purchases –the question of privacy and the question of monopolyof such data. How are you planning to tackle these?

Shimada: I think it must be up to users themselves how such
personal information is used. In terms of privacy, we would notJapan SPOTLIGHT • May / June 202011

COVER STORY 2

provide any personal data to anybody else unless the person permits
us to do so. This is what we call prior approval. Our basic policy for
privacy protection is to prevent third parties from using personal
information unless each individual user finds it valuable.
On the question of possible monopoly of the data, I think
successful companies, like GAFA, in the business of data analysis incloud computing that uses information obtained from a smartphoneor PC, in other words data analysis based on data transferred from“cyberspace” to “cyberspace”, committed two big errors. The firstone was their monopolization of data. They were accused of violating
the antitrust laws by European companies. The second one was thatthey used the data without getting the permission of the individualowner of the data. Though the creation of the General Data
Protection Regulation (GDPR) by the European Union addressed thisquestion of privacy, the business of handling personal data still
seems to be regarded with suspicion. This is, I believe, a big tragedy
for people, because without the smooth circulation of data, businessactivities in our economy will be significantly slower.
We are very aware of the importance of protecting human rights,
and our company has been discussing what should and should not
be allowed on this question of privacy with a group of experts fromoutside the company. We have not yet settled on a general rule, but
we recognize that any errors in rule-making could gravely impact on
our future business. So we continue our discussions and will be as
prudent as possible. I think if any individual considers any businessuse of their personal information as a violation of his or her privacy,
it must be officially interpreted as a violation of privacy. This is asimilar concept to the one adopted by the GDPR. Unless we create asystem that convinces users that their privacy is firmly secured, wecannot achieve “Data Free Flow with Trust”. This is not a matter oflaw but a matter of business structuring, I believe.

Question of Cybersecurity
JS: Cybersecurity would be a big challenge for yourbusiness. In particular, in an age of massive data flowfrom a physical product to cyberspace I think it
would be even more crucial to achieve ensured
security. How do you assess Japanese technology’s
performance in this area?

Shimada: Japan has been trying to ensure security by avoiding
connecting physical products with the cyber network. But this iswrong. Going forward, it will be extremely important to enhance
security with physical products being connected with the cyber
network.
Currently, Toshiba is developing a telecommunication systemcalled Quantum Key Distribution. With this system, the two
communicating users would be able to detect the presence of any
third party trying to gain knowledge of a shared secret key known
12 Japan SPOTLIGHT • May / June 2020

only to them which they can use to encrypt and decrypt messages.
We would like to make this a global de facto standard, and will try to
do so with the release of commercial use of 5G. When 5G prevails,
we think that growing attention will be paid to new technologies likeautonomous driving, autonomous control of electric power andautonomous robots, since they could expose human beings to lifethreatening crises if any hacker caused them to malfunction. We
would like to see this cryptographic communications system widelyadopted, as a way to enhance security for those critical technologies.

Contributing to Social Welfare in an Aging
Society
JS: Now, I see that Toshiba Group is contributing toenhancing welfare in an aging society by providing
people with data on health. In doing so, how would
you try to mitigate what we call the “digital divide”
between elderly people and the younger generation?

Shimada: We plan to make IoT much easier to work with than it isnow. We made an IoT platform called ifLink, and I am the board
chairman of “ifLink Open Community”. With this, even older users
without any knowledge of digital technology could easily program
the home electric appliances connected with their smartphones. They
can just pick up a card with “If” and another one with “Then” andmake a program such as “If the door is opened, then switch on thelight”. They can choose the action they want, and once theprogramming is done, they do not have to use the smartphone. This
would be easy for the elderly.
With the expansion of IoT, it will be important that anybody canuse it cheaply and easily. To achieve it, we made this platform open
to everybody. Anybody can make an “If-Then” program and around100 companies from a variety of sectors have announced theirsupport for ifLink. I believe we will see a wide variety of IoT andmany products emerging from diverse companies. Many kinds of IoT
will be created by spontaneous combination of these products
depending on users’ preferences, in areas like infrastructure,
automobiles, home security and delivery services.
ifLink is really simple software but if people find it interesting andit prevails all over the world, a scale-free network will be
automatically born. There would be an infinite number of
combinations among the products. My presentation of ifLink at theWorld Economic Forum in Davos in 2020 was very well received by
the audience. We look forward to seeing this platform make great
progress.

Written with the cooperation of Naoko Sakai who is a freelance writer.

Economists’ Views on the Global Economy

Role of Digital Education
to Help Long-Term
Growth Recover
Under Covid-19
By Naoyuki Yoshino & Masaki Nakahigashi

Introduction
At the university where I am teaching, professors are now giving
classes in rooms where there are no students, though the windows
and doors are kept open to create good air quality. They are giving
their lessons via their personal computers. I have not met many
students during the spring and fall semesters in person: I have metthem only through my PC. This is a striking change from our normal
teaching styles at school. Digital technology will change the style ofeducation substantially. This change in how to develop human capitalwill result in big productivity differentials.

Importance of Digital Networks
Digital networks will result in huge productivity increases. The
government and private sectors in Japan are lagging behind indigitalization, as shown in Chart 1 where Japan is ranked 30th
among OECD countries. This is a chance to improve productivity andsocial customs in order to boost efficiency. The private sector has tomeet the needs of customers, but competition among businesses
will push digitalization in a speedy manner. The government sectors,
however, including local governments, are only making gradualprogress compared to private businesses. The education sector isanother area where digitalization can be incorporated.
Incentive mechanisms must be put in for the public sector to
improve its digital-based work environment. One way would be to
reduce budget allocations if some ministries are slow to introduce
digital-based public administration.

Ways to Finance Digital Networks
To construct a nationwide digital infrastructure network will cost a

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

AuthorNaoyuki Yoshino

Author
Masaki Nakahigashi

huge amount of money. Since Covid-19, many local governments
have had to spend huge sums on the health sector and to support
small and medium-sized enterprises (SMEs). They have little room tospend on digital infrastructure investments.
Broadband India, for example, would like to expand its network
not only to cities but also to rural areas. Digital networks will bringnew residential areas and new business to regions. But if digital
infrastructure relies only on user charges, not enough money will becollected to expand networks all over the country, and heavy use ofdigital infrastructure will be restricted to urban areas, leaving rural
regions behind.
Investment in digital infrastructure will lead to more people livingin the region in question. New businesses will come to the region,and new shopping malls and restaurants will start to operate.
CHART 1

Utilization of government digital
infrastructure
Ranking1
2

IcelandSweden3Denmark

5

Norway

4
8

12

23

Estonia
FranceUK

Canada25

Germany

30

Japan

27

Italy

7.3
0

10

20

30

40

50

60

70

80

90 100 (%)

Source: Selecting future 2.0, Cabinet Ministry, 2020, chairperson: Yuri Okina

Japan SPOTLIGHT • January / February 2021

43

Operation

T3

Source: Compiled by the authors

Various tax revenues (corporate tax, income tax, sales tax andproperty tax) will increase, as shown in Chart 2. If part of thespillover tax revenues were returned to the operators of digital
infrastructure and investors in it, the rate of return will be muchlarger than relying only on user charges (“Impact of infrastructure on
tax revenue: Case study of high speed train in Japan” by Naoyuki
Yoshino and Umid Abidhadjaev, Journal of Infrastructure, Policy andDevelopment, Vol. 1, Issue 2, 2017).
Maintenance and repair costs can be covered by total revenues(=user charges and spillover tax returns). By creating digital
infrastructure, even though governments share their spillover tax
revenues with operators and investors, they will gain net revenues
since the spillover tax revenues are additional revenues.
Digital infrastructure bonds are another way to finance a digital
network. As shown in Chart 2, the interest rate on bonds should be
set at the same rate (r*) as ordinary government bonds until the
spillover tax returns in addition to user charges exceed r* (=the rateof interest on ordinary government bonds) at period T3. In Chart 2,
50% of total spillover tax revenues are assumed to be returned toinfrastructure operators and investors. In other words, thegovernment and private sectors should share spillover taxes half andhalf (“Inducing private finance to water supply and inland watertransport using spillover tax revenues” by Naoyuki Yoshino,
Innovation for Water Infrastructure Development in the Mekong

44 Japan SPOTLIGHT • January / February 2021

Digitalization in Education
Covid-19 forced schools to close. Many schools started online
education without their students being physically present at theschool. In order to ensure efficiency and fairness, digital education
should be provided over the Internet or mobile devices so that all
students can have access to the lessons without attending school.
A national online education service could be provided for all levelsof students from primary school to university level. Even adulteducation can be provided. Table 1 shows an example of an online
lecture program. P stands for primary school, J stands for juniorhigh school and H stands for high school. 1 is the first grade and 3shows the third grade. The time of the online lesson is provided
under the subject, such as mathematics or history. The best teachers
TABLE 1

Online lessons program
Mathematics

History

……

P1-1
P1-2

Wed. 1000-1040
Mon. 0900-0940

Fri. 0200-0240
Tue. 1050-1200

……

J1-1

Thu. 0900-0950

Wed. 1100-1150

J3-20

Tue. 1300-1350

Mon. 1400-1450

H1-1

Mon. 0800-0850

Tue. 0900-0950

H3-45

Fri.

Thu. 1300-1350

0900-0950

Source: Compiled by the authors…

Construction
periodUser charges

…

T2

…

T1

T0

…

r*

…

CAP

…

Spillovertax revenues…

Rate of
ReturnRegion, Chapter 3, OECD, 2020).
Governments can set a “cap” on the digital infrastructure bonds.
The spillover tax returns above the cap would be kept as government
reserves to compensate for the construction costs (period T0 andT1), maintenance costs and other costs. Extra spillover tax revenues
above the cap can be kept as reserves to prepare for natural
disasters such as typhoons or earthquakes. These bonds will give
incentives to digital infrastructure companies to develop regions inorder to increase spillover tax returns which they can receive asrevenues. These returns will also be a means of keeping user prices
as low as possible, which could in turn expand the number ofbroadband users.

…

Floating government bonds reflecting
spillover tax revenues…

CHART 2……

……

in the country can provide online education in various subjects andtheir lessons can be accessed by students at any time. Lessons indifficult subjects could be watched repeatedly at home.
Local teachers could complement the online lectures provided by
top teachers by watching to see if their students in class haveunderstood them well or not, and providing supplementary
information. The online lessons could be taken at home if the school
is closed. This is one way in which digital technology can change theway students are taught.
Adult education can also be easily introduced online. Various
training courses, such as customer relations in the retail sector, canbe provided online. Such courses could be provided in two ways –by the Ministry of Education and by private broadcasters. The
ministry would be able to provide a wide variety of courses to fit withthe curriculum as compulsory subjects, while private broadcasting
companies could set up their own courses using their own materials
and unique methods.

Digitalization Can Promote Sales of SMEs
SMEs hire fewer recruits each year compared to large companies,
and it is difficult for them to set up their own education and training
courses for their employees. Digital education programs on various
subjects would be able to help improve the skills of employees at
SMEs.
Online sales have been increasing since the Covid-19 outbreak,and many people have started to order goods through the Internet.
Digitalization will help SMEs whose sales networks were poor
compared to large businesses to sell their products. Farmers can sell
their vegetables and meat by taking orders through the Internet. New
start-up businesses can take orders from customers online, and if
their products are high quality and reasonably priced customers willorder them repeatedly. Their sales can be expanded overseas by useof digital technology if payment systems across countries are wellestablished.

Infrastructure & Education
Digital education can be provided not only in cities but also in rural
areas and remote islands. It has often been observed that urban
areas have more teachers of high quality than rural regions, while

remote islands cannot provide top-level education in many subjects.
But digital education will change traditional concepts of education.
Wherever students live, top-level lessons in all the subjects can beprovided to them through mobile devices. As long as students havethe desire to learn, teachers in remote places can provide them withthe answers. The Ministry of Education can help set up online
courses taught by top teachers in all subjects.
Using 44 countries’ data from the United Nations, Table 2 showsthat secondary school education and university education together

TABLE 2

Infrastructure investment & education
Dependent variable: log difference GDP per capita in 1991-2010
Regression number
Variables
InY_1991
In (n+g+d)
In (Kg)

REG.1

REG.2

REG.3

Coef.

Coef.

Coef.

-0.06

-0.14

-0.14

(-0.54)(-1.35)(-1.38)

-3.09

-5.75

-4.36

(-0.59)(-1.23)(-0.77)

0.23

0.34

0.53

(1.17)(2.00)(3.30)In (Sec)

0.00(0.46)In (Kg) x In (Sec)

0.20(1.59)In (Uni)

0.21(2.07)In (Kg) x In (Uni)

0.24(2.76)

Constant

-0.28

0.56

0.48

(-0.33)(0.69)(0.57)

Number of observations

44.00

44.00

44.00

R-squared

0.21

0.30

0.30

F-statistic

2.62

4.14

3.29

Note: “Kg” stands for infrastructure, “Sec” stands for secondary school education and“Uni” stands for university education. “ln(Kg)xln(Sec)” and “ln(kg)xln(Sec)” show
infrastructure combined with secondary school education and university education
will enhance much more impact in regional growth.

Source: Naoyuki Yoshino and Umid Abidhadjaev (2016)

Japan SPOTLIGHT • January / February 2021

45

CHART 3

Economic impact of infrastructure
Infrastructure

Positive
Economic
GrowthTABLE 3

Impact of 10% increase of humancapital on GDP in regions in Japan(trillion yen, Real GDP, base year 2005)
Primary
Industry

Secondary
Industry

Tertiary
Industry

Hokkaido

0.03

0.21

0.81

Tohoku

0.05

0.50

1.16

Northern Kanto

0.04

1.10

1.20

Education

Southern Kanto

0.03

2.60

7.17

Secondary School
University

Hokuriku

0.01

0.44

0.75

Tokai

0.03

1.62

2.32

Kinki

0.02

1.65

3.44

Chugoku

0.02

0.61

1.05

Shikoku

0.02

0.24

0.54

Northern Kyushu

0.02

0.49

1.26

Southern Kyushu

0.03

0.23

0.59

Railway
Road
Internet
Water supply
Electricity

Source: Compiled by the authors

with infrastructure investment can create a statistically significant
economic impact on a region (“Explicit and Implicit Analysis ofInfrastructure Investment: Theoretical Framework and Empirical
Evidence” by Naoyuki Yoshino and Umid Abidhadjaev, American
Journal of Economics, 6 (4), 2016). Secondary school education will
give basic skills to everybody, while university education will provide
higher skills for professionals. Table 2 gives an econometric estimateof the relation between education and infrastructure investment.
Digital education which can be provided not only in cities but also
in rural regions will increase the productivity of people in thoseregions together with infrastructure investments.
Chart 3 demonstrates the importance of digital infrastructure in
addition to secondary school and university education pushing up
economic growth.

Human Capital Development: Estimates of Impact
The following estimation reports the impact on productivity invarious regions in Japan of a 10% increase of human capitaldevelopment, such as by digital education (“Changes in Economic
Effect of Infrastructure and Financing Methods” by Masaki
Nakahigashi and Naoyuki Yoshino, Public Policy Review, Vol. 12, No.
1, 2016). Table 3 summarizes this impact on production in primaryindustries (=agriculture, fishery sector), secondary industries(=manufacturing) and tertiary industries (=services sector). The

46 Japan SPOTLIGHT • January / February 2021

Region in Japan

Source: Compiled by the authors based on Masaki Nakahigashi and Naoyuki Yoshino (2016)

estimation is based on Nakahigashi-Yoshino where a trans-log
production function was used at regional levels in Japan.

Conclusion
This article explains the importance of digital technology topromote sales by SMEs and quality education. Faced with Covid-19,
there is little fiscal room to increase spending on digital
infrastructure. Floating infrastructure bonds which return spillover
tax revenues for infrastructure operators and infrastructure investors
will be one way of bring private sector finance into infrastructure
investment.

Dr. Naoyuki Yoshino is professor emeritus of Keio University and visiting
professor at GRIPS, and former dean/CEO of Asian Development Bank Institute(ADBI).
Masaki Nakahigashi is associate professor of Niigata University.

COVER STORY • 6

HInterview with Dr. Gary Hamel, Co-author of the book Humanocracy

ow Can We Revive
Organizations as Innovative
as the People Inside Them?

By Japan SPOTLIGHT
During the Covid-19 pandemic, innovation can play a key role in helping businesses navigate the crisis.
Restaurants, retail shops and other service sectors need to change their face-to-face business with clients
due to social distancing, and the managements of these businesses now face the critical need to enhancetheir innovation.
Dr. Gary Hamel, an influential business thinker and long-time faculty member of the London Business
School, is co-author with Michele Zanini of the recently published book Humanocracy: Creating
Organizations as Amazing as the People Inside Them (Harvard Business Review Press, 2020). He strongly
advocates in this book for management to unleash an individual employee’s creativity, energy andresilience from the control of a hierarchical bureaucracy as a key to innovation. Dubbed a “management
innovator without peer” by the Financial Times, Dr. Hamel offered us his insights in the followinginterview.
(Interviewed on Aug. 20, 2020)

Motivation to Write
Humanocracy

and their passion to work every day.
We know from other surveys that only one
in five employees believes their ideas matter
JS: Humanocracy is a very
at work, that only one in 10 is free toenlightening book that provides
experiment with new methods and solutions,many good ideas for saving
and only one in 11 believes that they cancompanies from inertia or lack ofinfluence decisions that are important to their
enthusiasm to innovate or raisework. It seemed that many organizations
productivity. What motivated you towaste more human capacity than they use.
write it?
And think about the challenges that ourorganizations face – they are inhuman, they
Hamel: The motivation came as I observed
are incremental and quite dispiriting – theseorganizations from all over the world
are things that human beings know how to
struggling with the same disabilities.
fix. So as human beings we are resilient, we
Whatever the country, whatever the industry,
go through difficulties and tragedy. We areit seemed that large organizations had somegoing through an immense global crisis rightcore incompetency, and most of them
now and we are extraordinarily resilient and
Dr. Gary Hamel
struggled with proactive change. Often deep
able to reinvent ourselves and to adapt tochange is crisis-driven; it is episodic and often convulsive. Typically,
difficult experiences. As human beings we have this quality of
it takes a change in CEO to set an organization in a new direction
resilience, but our organizations are inertial. As human beings we areafter much ground has been lost. I also saw that many organizations
immensely inventive and creative; every day 500,000 hours of new
are incremental – they are not very good at changing using thevideo content goes up on YouTube, and 1,300 new apps get
fundamentally new business models that come from relatively young
launched on the Google play store, and 40 million videos go up on
companies which are unencumbered by the machinery of
Instagram. So there is no shortage of creativity in our world, but ourbureaucracy. And finally, I could see that large organizations wereorganizations struggle to be truly innovative. And finally, humanwasting an extraordinary amount of human capability. Gallup – whichbeings are filled with passion – we care about the environment, ourdoes a global workplace survey – reports that only 17% offamilies, perhaps our sports teams, and yet our organizations are
employees around the world are fully engaged in their work. That
often passion-free zones. So I was struck by this strange difference,means the other 83% are not bringing their ingenuity, their initiative,
this divide between our capabilities and the lack of capabilities in our
https://www.jef.or.jp/journal/

Japan SPOTLIGHT • November / December 2020

25

COVER STORY 6

organizations.
So I wrote the book because I believed that organizations need to
become as resilient and as inventive and as spirited and daring as
the people inside them, and today that is clearly not the case. The
book hopes to change that. I would just add one more thought tothat. As a species, today we face an array of daunting challenges:
besides the pandemic we face cyber threats, deep social fissures,climate change, geopolitical conflict, mass economic migration, andthe potential of job-destroying effects of automation. Against thosechallenges, we need to be able to muster every bit of human initiativeand ingenuity on the planet. So we can no longer affordorganizations that are hierarchical, that are rules-bound, and that failto use this immensely valuable human capital.

Individuals & Organizations
JS: Our next question is about hierarchy. You seem tobe saying that hierarchy is the main culprit for low
productivity and less creativity of each employee inorganizations. Could you elaborate on how hierarchy
hampers individual creativity or passion?

Hamel: First, I would want to distinguish between two types ofhierarchy. There is one hierarchy that we inherited from bureaucracy.
Literally, the word bureaucracy means the “rule of desks”. That is the
traditional management structure in which you have a hierarchy ofadministrative positions, typically of department heads and businessheads and vice-presidents and senior vice-presidents and so on,where your authority depends on the position. You are a vicepresident and now you have that positional authority. And yes, I
believe that is quite often quite destructive.
The other kind of hierarchy is the natural hierarchy. On theInternet, there are some people who have more followers than others
on any social platform. On the Internet, I have influence only if
people choose to follow me; I cannot compel them to follow me. So
the problems with that traditional positional hierarchy are several. It
is important to remember why we have those formal hierarchies andwe have managers at all. If you go back to the early industrial era andeven before, information was very expensive to acquire and move.
The best way of doing that was through a hierarchy with theemployees talking to customers and sensing changes, and theywould report up to a manager. Then at that level you would
consolidate the inputs and the data from the managers and thatwould be reported up again. So in that period, that hierarchy was inessence an information-handling machine. And of course, in that old
world, the people at the top were the only ones who could see thewhole picture, the only ones with the entire view. Now, of course, we
can share information immediately, everyone can see the same
information instantaneously, and so this hierarchy is a relic ofanother age when information was very expensive to move.
Also, in the early industrial and pre-industrial age, most people atwork were illiterate or very poorly educated. And they needed a
26 Japan SPOTLIGHT • November / December 2020

particular breed of employee – a super employee called a “manager”
to tell them what to do. Now today, most employees are quite welleducated, and they do not need someone to tell them moment by
moment what they should be working on. And so, that hierarchy andthat managerial control are artifacts of a time 100 years ago andmore when information was expensive to move and when mostpeople did not have the skills to be self-managing. And yet thatbureaucratic structure has persisted. This causes damage acrossmultiple fronts.
In that traditional hierarchy, we make the assumption that thethinkers are at the top and the doers are at the bottom. Hierarchybuilds a kind of organizational caste system that distinguishes
between thinkers and doers, between managers and workers, andbetween the clever and the compliant. When you treat people as
doers, when you deprive people of autonomy and freedom in theirjob, they will not bring the best of themselves to work. That is why
only 17% of people are engaged in their work, according to Gallup.
And when you look deeper at that, it’s quite interesting because 89%of people around the world – at least in the Gallup poll – are satisfied
with the task. They don’t mind the physical thing they are doing.
What they object to is the work environment that infantilizes themand treats them like children.
In a typical company, an employee may be able to buy a car or anapartment in their private life but at work they cannot even buy an
office chair without someone else’s permission. So that hierarchy is
by definition disempowering because it is a hierarchy of authority
and that means those at the bottom have almost no authority, andthat is what the evidence says. It treats a large amount of employees
as second-class citizens. If you think that I am perhaps exaggerating
a little bit, I will share an example that appeared in the Harvard
Business Review a couple of years ago. This was said by one of the
managing directors of one of the world’s most influential consulting
companies: “The CEO, the CFO and the CHRO will shape business bylooking at the big picture, while others have their heads buried inoperations.” So he is saying that 99% of the organization does notneed to look into the future, they should just have their heads down,
doing what other people have told them. This is an extraordinary
waste of human capacity.
The second problem when you have a hierarchy with all thoselayers is that it takes an extraordinary amount of time to get things
done. If you believe that you need senior executives to make themost important decisions, that means that nothing changes until you
change the minds of people at the top. In my book I talk about two
decades that were lost for Microsoft. Between about 1993 and 2013,
Microsoft missed almost every new opportunity in the digital world
because their leaders were operating under the old mindset where
the personal computer was the most important digital device, andthe most important customers were CIOs in large companies. So
they missed the opportunities for smartphones and for tablets andonline music and so on. Now they are slowly catching up, but theylost two decades there. That is not a criticism of Microsoft, but it isan inevitable result of these hierarchical organizations because

COVER STORY 6

inevitably for leaders at the top with a long tenure most of theiremotional equity is invested in the past. They feel that they have todefend decisions that were made 10, 15 or even 20 years ago. They
are insulated from the latest trends by the layers of managers who
are trying to package up the data and make it palatable to the leaders
and are often unwilling to challenge the biases or the prejudices of
their superiors. Because of that, there are long lags between sense
and respond. So typically, by the time an issue is big enough orurgent enough to get the serious attention of the CEO, it is alreadytoo late.
And often today, the organization will never catch up. So my firstproblem with formal hierarchy is that it turns off a great quantity ofhuman capacity. The second is that it makes organizations very slow
because people on the front lines cannot act, they cannot experimentand move forward. Let me give you an example. The Chinesecompany Haier, which I know quite well, is now the world’s largest
appliance maker. I think they bought the appliance business of Sanyoin Japan and General Electric in the United States and are now a
global presence. When I first met Zhang Ruimin, the current CEO ofHaier, in 2011, he came to my office in California and we worked
through a translator. He had read my book The Future ofManagement and said that he wanted to build the kind of company
that I describe. He said, “We are going to encourage our employees
to become entrepreneurs, because people are not a means to an end
but an end in themselves. Our goal is to let everyone become theirown CEO, to help everyone fully realize their potential.” So what
Haier did was to reduce eight organizational layers down to three;they broke the company up into 4,000 micro-enterprises, small
entrepreneurial businesses, and they got rid of 12,000 middle
managers. They didn’t fire most of those managers, most of themwere re-deployed into these new entrepreneurial units, but thosejobs will never come back in a flat, highly networked organization
where individual teams have the freedom to make important
decisions, are accountable for results, and have the financial upside– you do not need legions of managers directing their activities.
In my book, I describe bureaucracy as a massive multi-layered
game that is played for the prize of promotion; it is played for the
prize of positional power. So if I play this game well, I get promoted
and a bigger salary. Unfortunately, the game of bureaucracy is notvery well-aligned to the actual challenge of creating value forcustomers, because the way you win in such an organization is you
learn to manage up, you learn how to massage your bosses ego, toshow great deference and not to argue. You learn how to negotiate
targets and how to manipulate the internal financial systems so thatyou have a chance of beating your numbers. You spend timedeflecting blame, learning how not take responsibility, learning how
to elbow rivals out of the way. So these behaviors are destructive
often, but in many organizations an enormous amount of energy
goes into these non-productive behaviors.
What you end up with is a hierarchy of people who are still
bureaucrats, not necessarily a hierarchy of people who are
distinguished by their courage, their imagination, their creativity andtheir leadership ability. So I think that the traditional idea of
positional power and bureaucratic authority is going to have tosurrender to something that is more dynamic, that better correlates
confidence and influence and is more open to ideas and suggestions
from people on the front lines.
JS: We think today that it is very important for

employees to feel happy in their work, and your ideas
in Humanocracy seem to be very helpful inencouraging an employee’s happiness. Would you
concur?

Hamel: Happiness is a difficult word, but I think yes. As humanbeings, we are at our best when we feel we have control over ourown destiny. You have seen protests over the last few months andyears in the US, but this is not just an American phenomenon. Firstof all, you saw a large group of disaffected voters in the Midwest partof the US who were left behind by deindustrialization. Those voters
put Donald Trump in power. I saw in Britain 17 million British citizens
voting to leave the European Union because they didn’t think that
distant political energy was alert to their needs. You see the Yellow
Jacket protestors in France and the 5-Star movement in Italy, andcoming back full circle to the US, it is not only people on the right
who voted for Trump – there are millions of young people, many ofthem college educated, who do not see a future for themselves. If
you look across the OECD, and this includes Japan, in every
generation since World War II the percentage of people making it
into the middle class has gone down. So we have immense
frustration on both sides of the political spectrum today and that
frustration is understandable. Every human being wants dignity. They
want to believe that their life matters and their vote matters. They
want opportunity and the ability to enlarge their skills, to enlarge
their contribution and to benefit from that. Finally, they want equity –they want the rewards of success to be fairly distributed.
The data says that millions and millions of people do not finddignity and opportunity and equity in the workplace, and if you don’t
find it there it is going to be very hard to find enough of thatanywhere else. So people go to work, and they are loyal and work
hard, but they find very little fulfillment there – they find fulfillment inplaying video games and distractions, and binge-watching shows on
Netflix. But the emotional returns from work for many people arequite low. We do need to change that, and there are three levels of
the argument in our book.
There is the economic argument that says, “We will not reversethat declining productivity growth until we find a way of turning on
the individual worker’s capacity at work.” So if you look at the data,
what we have seen since 1983 in the US is that the number ofbureaucrats working in the economy – the number of managers andsupervisors – has grown by more than 100%. It has more thandoubled. All other job categories have grown by less than 50%. Mostof this is not an artifact of government regulation; most of thiscomes from the natural human desire in organizations to win at theJapan SPOTLIGHT • November / December 202027

COVER STORY 6

game of bureaucracy and acquire more of the trappings of positional
authority. So bureaucracy self-replicates in our own organizations.
As bureaucracy has been growing, productivity has been slowing. I
do not think those things are uncorrelated because bureaucracy puts
a tax on the entire economy. We calculate that for the OECD, if we
could reduce the bureaucratic load by half, and we know this ispossible because we see some companies that have done this, itwould raise economic output across the OECD by more than $10
trillion. That would more than double recent productivity growth, justthat single move, if we could achieve that over the next decade.
There is a competitive reason as well. If I look at many of the greatcompanies in Japan, many of these have struggled to keep pace withchange as the pace of change has accelerated. So today the biggest
risk to any company is not that it becomes inefficient; it is that it
becomes irrelevant. Many CEOs are now learning a very hard lesson– that you cannot win in a networked world with a hierarchicalorganization.
Finally, there is a social reason, because people have a right todignity in their work, they have a right to grow at work and to have afinancial upside, and for many employees that is not possible. As
consumers, we understand now the idea of radical innovation. When
you think about how the way we pay for things has changed withmobile payments, when you think about how we consume news andinformation – these are radical changes over the space of a decade.
So I would argue that just as today we could at least contemplate
and think about radical innovation in business models, now we needto think about radical change in management models, because this is
the only way of building locally competitive companies and building
a society in which everybody has the chance to win.
JS: We believe that digital technology could reduce

the negative aspects of bureaucratic organizations orhierarchies. Would you agree?

Hamel: In traditional organizations, most of the relationships andinformation flows were vertical. That is, command and control.
Today most of it is lateral. We are already online and using Microsoft
Teams and so the reality is that our organizations are already morelateral than they are vertical. And yet we are using these newcollaborative technologies mostly to make white-collar work more
efficient. So many of the new collaborative technologies do for teams
what Microsoft Office did for individuals 30 or 40 years ago. But that
does not change the structure of the organization; very few
companies are using these collaborative platforms to set strategy.
They are not using these to ask thousands of employees what theyneed to change in that bureaucratic model. We are doing that insome companies – we have a platform using our software that webuilt that is now being used by 70,000 people in Apple to collaborate
and share ideas in a way that was simply not possible a few years
ago.
The technology could harness the collective wisdom andimagination of many people, but the people at the top still have to be
28 Japan SPOTLIGHT • November / December 2020

willing to listen. They have to be willing to empower people and to
give them a voice in these conversations; otherwise those people willtake their ideas somewhere else. They will be talking offline, they will
be on Facebook, they will be talking about something else, but you
won’t be harnessing them at work. So it is wonderful having these
new open platforms, but first of all you need an open mind to be able
to use them.

Management in “Humanocracy”
JS: Our next question is about managers. We need to

select wise managers in order to achieve the purposeof “Humanocracy”. How do you think that would bepossible? Meritocracy might be the answer
mentioned in your book, but could you elaborate on
this argument.

Hamel: Let me start with a little anecdote. In the book I talk about aDutch company called Buurtzorg. This is the leading provider ofhome health services in The Netherlands, and this is a growing
business around the world as we have an ageing population. So
Buurtzorg employs around 16,000 nurses and nurse helpers. They
divide those 16,000 employees into teams of 12 caregivers. Eachteam has somebody who is responsible for finances, somebody whois responsible for staffing, someone responsible for winningcustomers. Each of these teams operates as a little business. They
have to find their own office space, they recruit colleagues, and they
win customers. All of those teams are tied together by a social
platform. So if I have a problem with a patient I can go online andsearch the collective wisdom of 16,000 colleagues about thisproblem. The performance of every team is visible across the entire
network, so I know exactly how my team is doing against all the
typical parameters of patient satisfaction and nursing utilization.
Nobody wants to be at the bottom of that league table. So given all of
that, they run a company of 16,000 people with only two managers.
Two managers. That is a span of control of one to 8,000 people. And
when they built the company, one of the founders said, “I want tocreate a company that values humanity over bureaucracy.” I told thisstory because I am not sure how many managers we need – maybe
we don’t need any.
We certainly need less, so if you look at the companies we profilein the book, another example is Nucor, one of the world’s mostinnovative and profitable steel companies. It is a company with
20,000 employees, and they have roughly one-third the number ofmanagers of their competitors, because they have frontline
employees who are taught to think like business people. Blue-collar
employees who know how to read a profit and loss (P&L) statement
and calculate return on capital, who have a natural upside if they
improve those metrics, and every day they spend thinking about how
to build a more successful business. So when you have people at thefront lines who have been trained to think like business people andwho have the authority to make important decisions and who have aCOVER STORY 6

financial upside if they do well, you do not need a lot of managers
because these people are self-managing. How do we select wise
managers? I think we are going to need a lot fewer managers.
Let’s go back to the early industrial revolution. When you had allthese people coming to work, many of these people were illiterateand so you needed a manager to tell them what to do. The firstbusiness school gets established in the 1890s. All of the leadingbusiness schools get established around 1890 and 1930 or 1940 andthen the rest of the world follows suit. The business schools werecreated to train this new breed of employee called the manager. At
that time, it was a very rare skill set – it was like a data scientist
today or a geneticist, very rare and very special. That was true formanagers 100 years ago. No more! Interestingly, our companies arestill hierarchies of administrative expertise. What distinguishes one
layer from the next is just the size of your headcount and the size ofyour budget, not that you are adding more value, but you get paid
more and get a better title because you have a bigger organization
beneath you. Which is why people want to build a biggerorganization beneath them – whatever the role, you try to add staff
because that is how you get power and authority.
But I think that today, with information instantly available and very
educated employees, the number of managers we need is much less.
In 1988, Peter Drucker said that 20 years into the future we would
have half the organizational layers and one-third the number ofmanagers, and that did not happen. He should have been rightbecause with better-educated employees as we went from anindustrial to knowledge-creative economy, and as we got better
communication, it should have been possible to reduce all of thatbureaucracy, but it did not happen and we have to ask why. The most
likely explanation is that people with power are pretty good at
hanging on to it and can give reasons why they need to. That is thenumber one challenge in busting bureaucracy. I think of Pope Francis
when he became the pontiff in 2013. He declared that he was goingto cut through the Vatican bureaucracy – he wanted to create achurch that was more responsive to the needs of the world and lessinwardly focused. He was asked last year how it was going withdismantling the bureaucracy, and he said that it was like trying toclean the Sphinx with a toothbrush.
So if you want to bust bureaucracy you have to evolve the wholeorganization. This will never happen top-down – you cannot ask
bureaucrats to remove bureaucracy, as a rule. Coming back to yourquestion, I think that what we are going to have to do is todistinguish genuine leadership from management. That is hardbecause what we do today is talk about senior managers as if they
are leaders, whether or not that is true. You hear people talk about“the leadership team”, but my experience is not all of those people
are leaders, and usually it is not a real team. They are usually fightingwith each other, have very different views and perspectives, and yet
we call them leaders. People refer to themselves as being in the“leadership ranks”. I think that be a leader is not about yourpositional power. Today, with young people coming to work, if you
have to rely on bureaucratic power to get things done you are

actually eroding your leadership capital. You are losing the respect ofyoung people because they have grown up in a world where power
trickles up, not down. If you have influence on the Internet. it isbecause people have chosen to follow you. People need to ask
themselves – assume for a moment that I have no title with my nameand no positional authority, what can I accomplish in myorganization? If the answer is “not very much”, then you areprobably a bureaucrat and not a leader. What we have done is that
we have completely conflated and intermingled these terms. My viewof leadership is very simple – a leader is somebody who makes acatalytic contribution to collective accomplishment. That could beanybody at any level. And so I think that in some of the companies I
talk about in my book the teams chose their own leaders. Leadershipshould be the reciprocal of followership. You are only a leader if
people will follow you if they have the choice. That is the otherquestion you could ask – if people had the choice, would they
willingly follow?
At Haier, every year at every one of those micro-enterprises, theyelect a leader. And if they miss their performance targets for threemonths in a row, it triggers a new leadership election. You can evendo a hostile takeover if you see a micro-enterprise that is not doing
very well and you know that people are anxious to do better, you cango and make your case and say, “I think I can lead your team better.”
And if the team says yes, you are the new leader. The reason that
Haier can trust this kind of system is because every employee has afinancial stake in the business. They are quite willing to tolerate aleader who is maybe not the easiest to get along with if they help
them to achieve amazing results. So I think that we are going to have
many fewer administrators in organizations; the work of managing
will be more distributed to the periphery. I think that leadership willbe less about mastering administrative tasks and will be much more
about your capacity to drive meaningful change in a hostileenvironment with other people. We need to be very careful about
conflating these terms “leadership” and “manager” as they are quite
different.

Future of “Humanocracy”
JS: Our last question is about the future aspect of“Humanocracy”. Do you think it will turn shareholder
capitalism into stakeholder capitalism all over theworld? Also, what is your view of the role ofleadership recommended by “Humanocracy” in theage of the pandemic?

Hamel: I think that we already live in a world of stakeholder
capitalism. Businesses have many responsibilities and not only toshareholders. Businesses do not have any innate rights. As humanbeings, in my way of thinking about the world, human beings haveunique and inalienable rights, but I don’t think companies do.
Leaders need to remember that, because if you are not attentive tosociety’s needs, then they will take away your freedoms and you may
Japan SPOTLIGHT • November / December 2020

29

COVER STORY 6

end up having less latitude on many issues. So it is better to beproactive than reactive in meeting the demands of society. We are
already in that world and that is happening. However, around theworld, capitalism is in crisis, which is quite extraordinary when you
think about it. There is no other system that has lifted so many
people out of poverty as capitalism. It does not have a single
intellectual rival – so why are people so frustrated? There was a
recent poll across the 28 OECD countries, and 56% of people
thought that capitalism does more harm than good – that is
extraordinary. The reason is that capitalism has allowed itself to beperverted in some ways; it is not something inherent in capitalism,
but it has allowed itself to be perverted and I think we have toseparate two ideas here – the idea of capitalism from corporate
power. In my country, more than 80% of Americans say that big
companies have too much power, and it is hard to argue against this.
They have immense power. I am sure the same is true in Japan,
where you see more and more industrial concentration and smaller
numbers of firms competing for customers. We know that pricing
power is going up – economists tell us that a greater share of thegains is going to corporations versus employees.
There is an estimate in the US that $400 billion a year is goingfrom consumers to producers who have more market power. Thenyou see a lot of financial engineering – companies spending trillionsof dollars on share buybacks, loading up on debt, imperiling thebalance sheet to give the illusion of superior performance whensimply what they are doing is reducing the denominator in theirearnings-per-share calculations. So I think there is a legitimate
reason why people are upset with concentrated corporate power andthe interference of large companies in the political process.
Let us not mistake abuse of corporate power with capitalism; that
happens because the people who are supposed to be defending us
are asleep at the switch. That is what we pay governments to do –not to kill capitalism but to point it in the right direction. I am in favorof more vigorous competition policies, and in favor of incentives forlong-term shareholding, and in favor of CEO pay. All of that makes
sense. But here’s the deeper challenge with capitalism – as I said
earlier, most people want a chance to run their own business, tohave that sort of freedom. In the US, 77% of millennials want to run
their own business. The number one subject area in most MBA
programs is entrepreneurship. Many people will not have thischance.
When I look at Haier or other companies, I think you could createa league of owners; you could create a company where you divide it
into small teams, everyone has a real P&L, not a top-down
performance target, has the freedom to make business decisions,and where you can invest in your business and get a dividend. Thereis no reason to have a company that is just managers and employees– instead you could have a league of owners that share platforms
and assets and compete together in productive ways. I think that for
at least 30 or 40 years management experts have said that there is
no way large companies can be entrepreneurial – that is completely
wrong. Every employee needs a real financial stake in the business, a
30 Japan SPOTLIGHT • November / December 2020

real upside, real decision rights, because that brings dignity into
work, and most people would like that chance.
Secondly, regarding the role of “Humanocracy” in the age of apandemic, in most organizations over the last 30 or 40 years
centralization has brought more and more power to the center, andthere is good data for this. What happens in a big crisis is that power
moves away from the center. In a small crisis, if you have a financial
scandal at a company or something else, power moves to the center,somebody steps in to correct it. But when the crisis is big enough,power moves to the periphery because the center does not knowwhat to do.
In most countries around the world at the beginning of the crisis,
the bureaucracy struggled. Public health authorities struggled,
certainly in Britain and in the US and so healthcare providers at the
periphery stepped up. Nurses talked to nurses online, looking at thedata, trying to figure out how to save patients. So you have these
instant learning networks of physicians and caregivers, searching forbest practice and learning from each other. In a crisis, when you arefacing problems that are both novel and fast-moving, there is nohierarchy that allows you to deal with that solution.
The good news with the current coronavirus crisis is that itallowed a lot of individuals, under the worst possible circumstances,to dust off their initiative and ingenuity and to really make adifference. We need to give enormous thanks and gratitude to thepeople who did that. Looking ahead, I am not so optimistic because
as a crisis wanes authority moves back to the center. If you look atwhat happened after the 2008 financial crisis, for a couple of years
actual bureaucracy comes down. It took out some layers of
bureaucrats but in two years it was back on the same trajectory as
before. Unfortunately, Covid-19 is not lethal against bureaucracy. It
may give leaders a nudge, because it is another reminder that we live
in a world of unprecedented challenges, and to cope with that weneed organizations of unprecedented capability. This will give a lot ofleaders a nudge, and will create an inflection point in remote working
which is probably a good thing, and maybe it will give a little nudge
to say, “This is not the only crisis we face as human beings – weneed to get better at harnessing the capability of everyone and wehave to move away from these structures that are part of a world thatno longer exists.”

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

Recent Socioeconomic Issues • 2

T

he Development of “Job
Crafting” & Its Implicationsin the Workplace in Japan
AuthorNobutaka Ishiyama

By Nobutaka Ishiyama
Introduction
In Japan today we can observe what we call population onus, inwhich the working age population is decreasing due to a low birthrate and the aging of society. Against this backdrop, capacity
building and training of workers is increasingly vital to raising laborproductivity, since raising labor productivity will be one of the majorprescriptions for addressing the decline in the working age
population. One of the Japanese government’s principal economic
policies today is to change an individual’s work-life balance topromote their welfare as well as to raise labor productivity.
Developing an individual worker’s skills and capacities is one of the
major aspects of this policy. But putting too much emphasis on it
could result in a failure to promote the worker’s own welfare, andthus the motivation for working. This initiative will need to address
an essential question for both companies and their employees,
namely what values should be recognized by both sides. On thiscrucial question, “job crafting” is an idea to achieve high motivationfor each worker and thus eventually better business performance on
the company side. It means a redefinition of the work to be achievedby employees on their own, and they themselves can thus recreate
their jobs by this redefinition.
Job crafting is now attracting growing attention. This article will
highlight what it is and why it has been receiving attention in Japan,
as well as giving examples of it and looking at its possible future in
Japan.

Definition of Job Crafting
For an individual, self-fulfillment in one’s job, which is an
important goal in life, is not necessarily compatible with improving
productivity as a goal of labor policy. Job crafting has been
becoming popular because it reminds us of the essential question of
the meaning of work in an individual’s life. This was the idea
developed in 2001 by Amy Wrzesniewski, a professor at the Yale
School of Management, and Jane E. Dutton, a professor at the Ross
School of Business at the University of Michigan. It can becontrasted to “job design”, an earlier idea, as shown in Chart 1.
Job design is a given job assignment provided by the top
management of an organization or a worker’s superiors in thehierarchy of the organization, and as such it tends to be of a onesize-fits-all nature. Of course, in terms of organizational
24 Japan SPOTLIGHT • September / October 2020

management, it is definitely necessary. But there may be someindividual workers who are not happy with this passive kind ofworking style and who seek greater satisfaction in their workplace.
Job crafting could transform this situation even under the existing
job design culture, as it could enable workers to play a positive role
in redefining their assignments. This would be by a bottom-up andemployee-initiated process in which workers craft a job inaccordance with their preferences, transforming their assignment as
defined by the top-down process of job design into one which they
can do with greater motivation on their own behalf, while remaining
cognizant of the needs of the organization. With this personaltransformation of a job assignment into an individually valuable one,workers could achieve a greater sense of fulfilment.
The core of this transformation process must be redefining job
assignments. As in Chart 2, Wrzeniewski and Dutton assumed thatworkers basically desire to have greater control over their jobs byredefining them. Their view of work would then depend on whether
they saw their job as in some way separate from the overall work of
their organization or whether they regarded it from a more holistic
perspective in the context of the organization’s mission. In theformer case, the job might be seen merely as a means to earn asalary, but in the latter it might be seen as having valuable
implications for society as a whole and therefore be more meaningful
for the individual worker. If employees reassessed the value of their
CHART 1

The interaction between job design& job crafting
Job Design(Top-down, One-size-fits-all)
Manager-initiated structure

Meaningfulness Derived from Job
Job Crafting(Bottom-up, Individualized)
Employee-initiated Process
Source: Berg, J. M., Dutton, J. E., & Wrzesniewski, A., “Job crafting and meaningful work” inPurpose and Meaning in the Workplace, Washington: American Psychological
Association, 2013https://www.jef.or.jp/journal/

Recent Socioeconomic Issues 2

CHART 2The meaning of the work
Need forcontrol
over job andwork meaning

Alter view ofwork asdiscrete partsor whole

Changes themeaning of
the work

Source: Wrzesniewski, A. & Dutton, J. E., “Crafting a job: revisioning employees as active
crafters of their work” in Academy of Management Review, Vol.26, No.2 (2001)

work in this way, they would actively try to enrich the contents of
their jobs, while still observing the minimum requirements of theassignment as devised by job design.
According to Prof. Yuta Morinaga at Musashi University, a good
example of this redefinition of a job is that of the so-called“custodial” worker at Tokyo Disneyland. This job of cleaning all day
long had been considered one of the most painful and laborious at
the park, and was one of the most hated jobs among employees
there, who were often deeply disappointed with this inflexible
assignment. But then their superiors began to insist that the work of“custodials” is not limited to cleaning but contains a wide range of
duties such as clean management of the whole park and protecting
customers. The implications of the job have now successfullychanged from simply cleaning the park to contributing to thecreation of a customer-friendly environment in the park, which is ajob definition based on a more holistic context. The custodial
workers at Tokyo Disneyland now add their own creative services totheir routine job, such as drawing faces of Disney characters on the
ground using colored leaves or blooms. As a result, being a custodial
has become a very popular job among the workers there.

Implications of Job Crafting in Japan
Despite attracting increasing attention, there are some who saythat Japan does not need job crafting. The reasons may lie in theJapanese personnel management system. Charts 3 & 4 show thesalary system in Japan – the percentage of wages by post and job
responsibility, wages based on job skills, and wages related to age
and seniority to the total wages in Japan. Wages by post and job
responsibility are determined by a clear definition of a job written in adocument, like a job description statement. In this case, job design

as seen in Chart 1 clearly exists and is fixed by a top-down process
originated by the top management of an organization as well as
section chiefs. Meanwhile, wages based on job skills do not presume
any clear definition of job assignments and are determined by an
employee’s capacity. In this case, there should not be necessarily aclear definition of an assignment by job design and thus the scope of
the assignment can be interpreted and performed with flexibility.
Wages related to age and seniority are determined by the age of an
employee and the number of years he or she has worked for an
organization. In this case as well, it does not presume any clear job
design and the scope of job assignments can be rather arbitrary.
The charts show that in Japan the proportion of wages based on
job skills exceed 50% even among managerial posts, though theproportion of wages by post and job responsibility is on a rising
trend and among non-managerial posts the proportion of wages
based on job skills is higher than that of wages by post and job
responsibility. This means that in Japanese working places there is
not necessarily a clear job design and individual workers could
interpret the scope of their job assignments in a more flexible
manner. In other words, without the top-down process of job design
on behalf of the top management or senior officials, an individual
worker can do job crafting spontaneously in their routine work inJapan.
Related to this, Japanese workers are mostly multi-skilled. In
short, as job design does not divide the working process in detail,each employee would be responsive to plural working requirements
and this results in creating many multi-skilled workers andincreasing their individual skills. In fact, kaizen, a well-known
business practice born in Japan for improving production efficiency
or safety through discussions among a small group of production
site workers, does not target any individual production process but
plural processes, and tries to achieve improvement of those
processes systematically. A production worker’s experience as amulti-skilled worker in doing a specific job but always bearing otherprocesses in mind would enable them to redefine their job
assignments in a broader and more systematic context. Thus, inJapan it may be true that job crafting has already become a de facto
routine in the workplace. If so, Japanese may not necessarily have tolearn from the theory of job crafting created by American businessschool professors.
However, I believe that the story of kaizen does not necessarily
show a precise picture of the reality of Japanese businessJapan SPOTLIGHT • September / October 202025

Recent Socioeconomic Issues 2

CHART 3

Trends in wage system introduced among
managerial post employees
(%)
90.0
80.0

82.4

72.3

80.9

74.5

70.0

67.0

60.0

30.0
20.0

0.0

1999

2000

2001

78.5

66.9

33.5
27.3

25.6

24.8

2009

2013

2016

Wages by post and job responsibility
Wages based on job skills
Wages related to age and seniority system

10.0

69.2

74.4

57.8

32.2

21.1

76.3

57.5

53.4

40.0

69.9

60.6

49.9

43.9

50.0

61.0

70.5

2003

2005

2007

26.7

2018

Source: Japan Productivity Center, 2019

CHART 4

Trends in wage system introduced among nonmanagerial post employees
(%)
100.0
90.0
80.0
70.0

85.2
78.2

87.0
72.8

69.3

73.2

70.1

69.3

60.0

40.9

50.0
40.0
30.0

80.9

76.7

24.9

81.1

82.7
76.5

61.9
56.7

32.9 34.3

59.1

62.3
58.0

51.1

56.4
49.6

57.8

47.1

17.7

Wages by post and job responsibility
Wages based on job skills
Wages related to age and seniority system

20.0
10.0
0.0

80.7

1999

2000

2001

2003

Source: Japan Productivity Center, 201926 Japan SPOTLIGHT • September / October 2020

2005

2007

2009

2013

2016

2018

management. There must be cases where the top
management of an organization would be theonly people who could define each job
assignment in detail by a top-down decision
making process, even though the definition mightleave room for flexible interpretation on the partof employees. In other words, if an organizational
culture is hierarchical and decision making isdone by a top-down process, the employees
would have to continue to do only what has been
instructed by management or their section chiefs,
while their job assignment remains ambiguous.
In fact, according to a Nikkei Journal article on
May 26, 2017 about a Gallup poll on employees’
engagement with their jobs among countries
worldwide, the Japanese employees’ score ismuch lower than the global average and ranked
132nd among the 139 participating countries. In
this article, Jim Clifton, CEO of Gallup
Corporation, mentioned that the reason why
Japanese employees’ engagement score was so
low is their organizations’ command and control,
ensuring that employees perform their job
without any contesting remarks on their
obligation to the management. This remark
seems to suggest that a top-down approach inbusiness decision making is dominant inJapanese organizations. Under suchcircumstances, job crafting would rarely beachieved.
There is another academic concept called“work engagement” implying an employee’s
willingness to work. In terms of this concept as
well, it is known that Japanese employees rank
low in international comparisons. But it is truethat job crafting would have an effect in raising
work engagement, so I believe there is a greatneed for Japanese workplaces to develop work
engagement by promoting job crafting, since
Japanese workplaces are not necessarily
concerned about their employees’ real happiness.

Recent Socioeconomic Issues 2

Examples of Job Crafting in Japan
I would like to introduce Japan Railway (JR) East TESSEI Co. Ltd.
as one of the success cases of job crafting in Japan. A former senior
executive of TESSEI, Teruo Yabe, wrote about how he was successful
in encouraging employees to redefine their jobs to raise theirmotivation in his book A Miraculous Company (2013). TESSEI is oneof the affiliated companies of JR East and its main business is toclean up the cars of Shinkansen bullet trains between their arrivals atand departures from terminal stations. This was introduced by CNN
in a news video in 2012 as “Tokyo’s seven minute miracle”. Before
redefinition of the work initiated by his leadership, the employees
had thought their job should be just cleaning the train cars exactly as
instructed by their boss. Yabe, having been transferred to a senior
executive post in TESSEI from JR East, questioned this, and hebegan to redefine the work of the whole company to raise
employees’ motivation. He made a clear change by proposing toredefine the work as “providing hospitality for the customers by their
total service” without limiting it to only cleaning up the train cars. He
tried to transform the workplace into an “exciting theater” which wasconsidered a symbol of the redefined job.
His concept led to a redefinition of each individual worker’s job.
The employees, having previously been passive in their workroutines, started to propose numerous new ideas for their jobs. For
example, to elaborate on the idea of “exciting theater” they adopted
seasonal clothing, such as aloha shirts or a yukata, a casual kimono,in the summer, and they created resting areas for babies next to
restrooms at stations and decorated them with colorful origami
paper.
Another good example of job crafting in Japan is the work done by
Haruko Niitsu, a leader of airport cleaning staff at Japan Airport
Techno Co. Ltd., whose work was introduced by an NHK TV program
series “Professional Working Style”. The distinguished cleaning skills
and technology of her and her staff have been instrumental in
Haneda Airport winning first prize a number of times in the airport
ratings for cleanliness made by the British air industry service
research company Skytrax Co. Ltd. She and her staff make the rightchoice of cleaning tool and detergent for a specific spot among
innumerable choices. Niitsu also redefines her job as one thatdelivers hospitality to a wide range of customers visiting Haneda,
Tokyo’s main international airport, as her staff work to ensure apleasant trip for all customers on international as well as domestic

flights.
These examples of job crafting in Japan all happen to be cleaning
jobs, in which the results of redefinition of the work can be easily
seen. But job crafting could be expanded to a wider scope of jobs. I
believe there would be a strong need for it in areas of knowledge
intensive jobs. You may think that knowledge intensive jobs would be
subject to a high degree of discretion and as such job crafting mightseem unsuitable. But as I pointed out, Japanese organizations seemto be more subject to top-down decision making which obliges
employees to follow the managers’ orders without questioning them,and so there must be a concern that knowledge intensive jobs cannot
take advantage of their discretionary nature in Japan. In this light, I
believe we should do more to promote job crafting in knowledge
intensive jobs in Japan.

A Footnote on Job Crafting
We need to take note of the challenges in introducing job crafting
as well as its implications in Japan. Job crafting is an exercise by
employees’ to recreate their jobs by redefining them in the hope thatthey will deliver greater self-fulfillment. Such redefined jobs would
not necessarily be in line with the expectations of their organizations
or colleagues, and might even be a nuisance for them. In thesecases, workers who had redefined their jobs might be regarded
simply as self-centered.
In order to avoid this, they must be aware that job crafting is acollaborative exercise with their colleagues. A well balanced
approach that takes account of an individual’s own initiative in
redefining his or her job without simply following a superior’scommand and also of collaboration with colleagues will be essential
in promoting job crafting in Japan.

Dr. Nobutaka Ishiyama is a professor at Hosei Graduate School of Regional
Policy Design. He received the JAHRD Award from the Japanese Academy of
Human Resource Development in 2018.

Japan SPOTLIGHT • September / October 202027

Special

Article 3

Redistributing Happiness:
How Social Policies Shape Life
Satisfaction (Part 1)

By Hiroshi Ono & Kristen Schultz LeeHappiness Science: Discovering What Makes Us
Happy
The pursuit of happiness is a fundamental right written into thefounding documents of many countries. And yet, the study of whatmakes people happy is far from complete. For many years, countries
pursued higher GDP with the unquestionable assumption that
economic growth will automatically lead to a happier society. But as
Richard Easterlin showed in his influential paper “Does Economic
Growth Improve the Human Lot?” in 1974, the correlation between
economic and subjective well-being was not as robust as had been
expected. Despite significant advances in our standard of living, people
claim to be no happier today than they did 50 years ago. The
disconnect between economic well-being and subjective well-being
has led to a renewed interest in the study of happiness.
Happiness research is now discussed widely in policy circles,
academia, the business community and the popular media. Owing toadvances in data collection and research methods, “happinessscience” is flourishing, with new discoveries of what makes us happy
or unhappy.
What makes us happy? Past theorizing has pointed to individual
pursuits like friendships and money, or to society-level factors like
wealth and equality. Yet neither approach alone can tell us what brings
happiness, because the reality is this: happiness is a question ofcontext. It’s determined by who you are and where you live.
In our book Redistributing Happiness (Praeger Publishers, 2016),
we view the sources of happiness in an international context. Ourcontribution is an interdisciplinary approach, exploring the sources ofhappiness from the perspectives of sociology, economics andpsychology. In particular, we pay close attention to the role of context.
Accounting for social context allows us to better understand that whatmakes people happy in one society may not do so in another.
Happiness is determined by the right mix of societal and individual
factors. A person’s happiness is shaped by the social context
surrounding him or her – by local policies, the size of the welfare state,norms and attitudes about religious beliefs, economic and politicalsecurity, income redistribution, and more. A person’s chance athappiness depends not only on who they are, or what they haveachieved, but also on where they live.
While the aim of any society is to improve the quality of life for its
citizens, there is greater political, economic and ideologicaldisagreement regarding how this can be achieved. Would individuals
be happier if the state played an active role? Or should the pursuit ofhappiness be left to individual choice and market forces?
60 Japan SPOTLIGHT • July / August 2020

AuthorHiroshi Ono

AuthorKristen Schultz Lee

In this two-part series, we highlight the main findings from ourbook, with particular focus on how social policies shape life
satisfaction. In Part 1, we focus on economic redistribution andtaxation, and their effects on people’s happiness. In Part 2, we focus
on social conceptions of gender, family and parenthood, and explore
how social policies can shape family formation and fertility decisions.

Welfare States & the Redistribution of Happiness
Let’s begin with the idea that countries can be mapped along acontinuum, which shows the extent to which the state becomesinvolved with the welfare of their citizens. The measure of our central
interest is public social expenditures (PSE). On one end of thecontinuum lie the market-based economies with low PSE and limited
government involvement. On the other end of the spectrum lie thesocial-democratic welfare states of Scandinavia with high PSE and ahigh degree of government intervention. (In Gøsta Esping-Andersen’s
seminal work on the three types of welfare capitalism, he outlines
welfare systems according to the role of market, state, and family. In
our study, we focus on the typology between the market and the state,
and transform this into a continuum.)
The Scandinavian welfare state model is first and foremost identified
by its universalism and comprehensive provision of welfare services.
Citizens of social-democratic welfare states enjoy comprehensive andheavily subsidized coverage of childcare, elderly care, healthcare,education and other forms of social support.
In stark contrast, in the market-based economies where thegovernment’s role is limited, many types of social services must bepurchased from the market. Social insurance is replaced by private
insurance, and publicly provided services such as healthcare andchildcare are replaced by market mechanisms. The market-based
system generates a more stratified and uneven society dividing those
who can afford such benefits from those who cannot.
Social democratic welfare states achieve universal andcomprehensive welfare services through the massive redistribution of
resources. The government collects revenue through a combination ofprogressive income taxes, flat consumption taxes, flat social security
taxes, and heavy taxation on addiction goods such as alcohol andtobacco. Tax revenue is then returned in the form of comprehensivesocial programs.
Through taxes and transfers, the social democratic welfare states
redistribute resources from low-risk to high-risk persons, thereby
reducing poverty and inequality. For example, OECD data from 20142015 show that the tax and transfer systems reduced income
https://www.jef.or.jp/journal/

Special

Article 3

inequality by more than 35% in Denmark, Finland, and Belgium,compared to 18% in the United States, and 10% in South Korea.
Sustaining universal welfare is expensive, and this can only beachieved through high tax revenues. While the citizens of the
Scandinavian welfare states benefit from the most generous level ofsocial insurance, these countries consistently rank among the highest
taxed countries in the world, in terms of both average and marginal tax
rates. The benefits of the welfare states are many, but so are the costs
associated with maintaining the system. Redistributing resources fromlow-risk to high-risk individuals requires that the rich are taxed heavily
to subsidize the poor.

Welfare States Can Generate New Inequalities
Redistribution of resources can reduce economic and social
inequality, but it can also generate new inequality in other areas. Some
types of social insurance benefit all citizens, but others are targeted forspecific demographic groups, such as families with small children.
This pro-family policy is rooted in the idea that families are exposed togreater social risk than are single persons or households withoutchildren. For example, in the case of healthcare, a single person may
be concerned only with his or her own health. But a parent in a familyof four must ensure that he or she is protected against the risk of
illness not only for himself or herself, but also for their spouse and twochildren. If a child falls ill in the household, it will not only affect thechild, but also the parent who may have to take time away from work.
The effect of welfare provision on happiness must be evaluated inlight of its costs and benefits. Following our discussion, it can beargued that the pro-family bias of the social democratic welfare stateleads to less generous treatment of people without children,
particularly of single persons. According to OECD data, single people
on average pay higher personal income tax and contributions to social
security (as a percentage of gross wage earnings) than do marriedpersons. While single persons do benefit from some forms of social
insurance, such as healthcare, unemployment, sick leave, and old-age
assistance, they do not qualify for the benefits that are targeted forfamilies with children. Hence, in this regard, the social democratic
welfare state is partial to families, and puts single persons at asignificant cost disadvantage. The burden of preserving a pro-family
policy falls disproportionately on single persons.

Measuring Happiness Using the ISSP Data
Let us examine how redistribution of resources can affecthappiness. We used data from the 2002 International Social Survey
Program (ISSP), consisting of 42,187 respondents from 29 countries.
The survey included detailed information about the respondent’s
demographics and socio-economic status including age, gender,
marital status, presence of children under 18 in the household,education level, employment status, household income, etc. The
outcome of interest is general life happiness. Respondents wereasked: “If you were to consider your life in general, how happy or
unhappy would you say you are, on the whole?” Responses range
from 1 = completely unhappy to 7 = completely happy.
At the country level, we include PSE as a proxy for the extent ofwelfare spending. PSE is available from the OECD database, and isdefined as the percentage share of GDP spent on welfare, excluding
education. In our collection of 29 countries, the social democratic
welfare states, i.e. the Scandinavian countries of Sweden, Norway and
Denmark, rank among the high PSE countries, while Mexico and thePhilippines rank among the low PSE countries.

Redistributing Happiness: Example 1 – Marital
StatusConsider the case of marital status. The Table shows the results ofsimulations predicting the odds of selecting one of the three highest
categories of happiness by marital status. The results are divided into
two categories of individuals, in low- versus high-PSE countries. We
refer to the high PSE countries as the social democratic welfare states
as these are dominated by the Scandinavian countries.
We find that average happiness is highest among married persons
in both low- and high-PSE countries, followed by cohabiting persons
and single persons. However, this marriage premium is not universal.
The happiness gap between cohabiters and married people is smaller
in countries with high levels of public spending (with no statisticaldifferences in happiness between these groups in high-PSE countries).
We elaborate on this finding below.
First, married and single persons are actually less happy in highPSE countries compared to low-PSE countries. The results thus
suggest that at least in terms of happiness, these demographic groups
do not benefit from living in social democratic welfare states. The
lower state of happiness for single persons (compared to theircounterparts in the low-PSE countries) is consistent with our previous
discussion. Single persons are less happy because they pay high taxes
for living in the pro-family based welfare states, but they receive fewer
benefits in return as they do not have children.
Second, we confirm that cohabiting persons are happier in thesocial democratic welfare states compared to their counterparts in
low-PSE countries. There is a well-grounded reason for why this is so(we will discuss the happiness gap between married and cohabiting
persons in greater detail in Part 2 of this series). In the Scandinavian
TABLE

Predicted odds of selecting one of
the 3 highest categories of happinessby marital status
Low-PSE countries

High-PSE countries*Social democratic
welfare states

Married

8.30

6.76

Cohabiting

4.22

5.95

Single3.47

2.05

Women – married withchildren

6.33

6.81

Women – cohabiting withchildren

2.93

6.37

Notes: PSE = public social expenditures. Low-PSE countries correspond to countries withminimum PSE. High-PSE countries correspond to countries with maximum PSE.

Source: Hiroshi Ono and Kristen Schultz Lee, “Welfare States and the Redistribution ofHappiness” in Social Forces 92(2), 2013.

Japan SPOTLIGHT • July / August 202061

Special

Article 3
for women with children; this is because women with children get an
extra boost in happiness for living in the high-PSE countries, as thesecountries are characterized by extensive public support for families.
Indeed, for married persons, the negative effect of children disappears
in the high-PSE countries, i.e. the happiness gap between married
women with and without children becomes statistically insignificant in
the high-PSE/social democratic welfare states. Likewise, we observethat the happiness gap between cohabiting women with and withoutchildren disappears in the high-PSE countries. These results strongly
suggest that the heavily subsidized pro-family policies of the social
democratic welfare states are effective in improving the happiness of
women with small children.

CHART 1

Predicted odds of happiness for
women with & without children

Predicted relative odds of happiness

9.0
Married with children

8.0
7.0

Married without children

6.0
5.0

Cohabiting withoutchildren

4.0

Redistributing Happiness: Example 3 – Income

3.0
2.0

Cohabiting with children

0

10
20
Public Social Expenditures (PSE) as percentage of GDP

30

Source: Hiroshi Ono and Kristen Schulz Lee. Redistributing Happiness: How Social Policies
Shape Life Satisfaction (Santa Barbara: Praeger, 2016).

countries, cohabiting persons with children have access to comparable
benefits as do their married counterparts, with regards to family
support such as childcare and paternity leave. The policy is based on
the ideology that all persons should have equal access to family
benefits regardless of marital status. Since this inclusive,
nondiscriminatory policy is available only in the social democratic
welfare states, it makes sense that cohabiting persons are happier
there, relative to other countries where benefits are clearly delineatedbetween married versus unmarried persons. In our study, we did not
find evidence that the marriage premium on happiness exists in thesocial democratic welfare states. From the Table we can see that there
is a small difference in the reported happiness of married andcohabiting persons and an even smaller difference in the reported
happiness of married and cohabiting women with children in the highPSE countries, but these differences do not reach statisticalsignificance.

Redistributing Happiness: Example 2 – WomenWith Small Children
While children can bring happiness to families, they can also impose
constraints. Resources, such as time and money, become constrainedwith the addition of a new family member. Empirical studies including
our own research have consistently confirmed that the effect ofchildren on happiness is negative, and that this negative effect isstronger for women than it is for men. These findings confirm
anecdotal observations that the burden of parenting falls
disproportionately on women than on men.
Chart 1 shows simulated results of predicted happiness for womenwith and without children as a function of PSE. Here, children are
defined as small children under the age of 18 residing in thehousehold. First, we confirm the negative effect of children on
happiness for both married and cohabiting women in the low-PSE
countries. More interestingly, we observe that the slopes are different
62 Japan SPOTLIGHT • July / August 2020

The relationship between money and happiness has attracted
considerable attention in happiness science. Does money buy
happiness? The answer is yes, but with qualifications. How much it
affects your happiness depends on where you live.
Taxes play a major role in transferring resources from low risk tohigh risk individuals. The high marginal tax rates in the social
democratic welfare states suggest that high-income individuals aretaxed at higher rates in order to subsidize the low-income individuals.
How does this transfer of resources affect the happiness of theircitizens? If happiness follows the same path as the redistribution of
resources, then we would expect to see a similar “transfer effect”,
from low-risk to high-risk individuals, i.e. from high-income to lowincome individuals.
Chart 2 shows how happiness changes with income as we movefrom low- to high-PSE countries. Since PSE as a percentage of GDP ishighly correlated with tax revenue as a percentage of GDP, the highPSE countries are also the countries with the highest taxes. (Indeed,
the following analysis reveals identical results when we substitute PSE
with tax revenue as a percentage of GDP.) In this three-dimensional
illustration, the vertical axis is the predicted log odds of belonging to
the top three highest categories of happiness. One horizontal axis isincome, expressed in Z-scores, and the other is PSE. For reference, wemark the four corners of the graph. Point A is the lowest income groupin the lowest-PSE country; at the other extreme is point D, which is thehighest income group in the highest-PSE country. The slope of AC andBD measures how happiness changes as income grows. The slopes ofAB and CD capture the change in happiness as one moves to a higher
PSE country.
First, we can see that the slope of AC is steeper than the slope of
BD. Higher income brings greater happiness in all countries, but thiseffect is much stronger in the low-PSE countries. Second, the slope of
AB is positive, but the slope of CD is negative. Low-income people arehappier if they live in high-PSE countries, but high-income people arehappier if they live in low-PSE countries.
Hence, the gain in happiness derived from money incomes is not
uniform across countries. Specifically, people in the low-tax/low-PSE
countries achieve bigger gains in happiness as their income grows. In
contrast, people in the high-tax/high-PSE countries derive little
happiness from higher income.
Our findings are largely consistent with expectations: happinessSpecial

Article 3

CHART 2

Individual income, public social expenditures& happinessthrough redistribution, but they can make the richless happy. Social assistance can make families withchildren happier, but single people less gratified.

Lessons for Japan

as

PS
E:
pe Exp Pu
rc en blien d cta itu So
ge re ciof s alG
DP

Happiness(Predicted odds of selecting the highest
categories of happiness)

Our research has important implications fortaxation policy. The effect of redistribution onhappiness is zero sum: the happiness of theeconomically disadvantaged is increased while thehappiness of the advantaged is decreased. From theperspective of public welfare, economist Richard
Layard argues that the goal of public policy should
be to reduce misery for the poor, rather than toincrease happiness for the wealthy. Following thislogic, it can be argued that the gains to thedisadvantaged from economic redistribution justify
the cost paid by the more advantaged members ofsociety.
Our research also has important implications for
fertility in Japan. Until recently, the safety net in
Japan was a hybrid of a conservative family-basedI(Z ncom-sc eoremodel (e.g. childcare and elderly care are provideds)by family members), and a corporatist model, wherecompanies (especially large companies) provided
generous support for families. However, against the
backdrop of declining fertility and an aging
Source: Hiroshi Ono and Kristen Schulz Lee. Redistributing Happiness: How Social Policies Shape Life Satisfaction(Santa Barbara: Praeger, 2016).
population, there is an acute realization that thetraditional family and corporatist model is no longer
sustainable, and that government intervention is crucially required.
redistribution in the social democratic welfare states mirrors income
Indeed, in the last few decades, Japan has transitioned to a moreredistribution in these countries. The ideology of “spreading the wealthsocial democratic, state-centered welfare state. PSE (as a percentage
around” in the social democratic welfare states diminishes theof GDP) remained stable at about 10% during the 1980s, but
happiness gains from income. Clearly, we see that the distribution ofincreased to 16% in 2000 and 23% in 2013.
happiness is compressed much like income in these countries. There
Redistributing resources through taxation can provide disincentives
is a smaller happiness gap between the rich and the poor, suggesting afor single persons to remain single. As our research has shown,
more egalitarian society with less economic and social inequality.
redistributive policies of the social democratic welfare states can
The fact that poor persons are happier in high-PSE countries
elevate the happiness of families with small children, but at the cost of(compared to their counterparts in low-PSE countries) suggests thatthose who do not have children, in this case single persons. Taxing
social welfare programs targeted for the poor not only improve theirsingle persons at higher rates may result in their lower happiness, but
economic well-being and protect them from poverty, but they also
at the same time it will discourage them from remaining single, andimprove their subjective well-being. Furthermore, the finding that richencourage them to start a family. The idea of encouraging higher
persons are less happy in the high-PSE countries suggests that thefertility through higher taxation of single persons dates back to Lex
poor achieve greater happiness at the cost of rich persons in these
Papia et Poppaea, legislated by the Roman Empire in 9 AD. Now, somecountries.
2000 years later, the law has important lessons for taxation and social
policy for Japan and for other societies struggling with super-low
Summary
fertility.
“Welfare states” have massive redistribution schemes, with moneyand other resources transferred from the privileged to the less so.
Social policies intended to improve the well-being of particulardemographic groups can have the unintended perverse effect ofHiroshi Ono, Ph.D. is professor of Human Resources Management at
lowering the happiness of others. Redistribution policies commonly
Hitotsubashi University Business School and affiliated professor of Sociology at
observed in Scandinavian countries like Sweden and Norway can makeTexas A&M University.
Kristen Schultz Lee, Ph.D. is associate professor of Sociology at thethe less privileged happier – but at the cost of reduced happiness
University at Buffalo, SUNY.
among the privileged. For example, taxes can make the poor happierJapan SPOTLIGHT • July / August 2020

63

Recent Socioeconomic Issues • 1

Redistributing Happiness:
How Social Policies ShapeLife Satisfaction (Part 2)

By Kristen Schultz Lee & Hiroshi Ono

AuthorKristen Schultz Lee

AuthorHiroshi Ono

In this two-part series, we highlight the main findings from ourrooted in the social context and the social support given to marriedbook Redistributing Happiness (Praeger, 2016), with a particularpeople, then this points to different policies that are needed tofocus on how social policies shape life satisfaction. In Part 1 (https://
promote health and well-being in the population.
www.jef.or.jp/journal/pdf/232nd_Special_Article_03.pdf), we focused
To investigate this question of the role of social context in shaping
on economic redistribution and taxation, and their effects on people’s
the relationship between marriage and happiness, we analyzed datahappiness. In this second article, we focus on social conceptions offrom 27 countries in the 2002 International Social Survey
gender, family and parenthood, and explore how social policies canProgramme’s Family and Changing Gender Roles module. Details of
shape family formation and fertility decisions. First, we examine whatthese data and our analytic approach can be found in Part 1. We
factors make married people happier than their cohabiting and single
started by estimating the aggregate happiness levels of married,
peers. We tackle the question of whether it is marriage itself that
cohabiting, and single people in these different countries. The Table
makes people happier or if it is instead something about the social
shows aggregate happiness by marital status across countries.
norms and beliefs in a society that celebrate and support
TABLE
marriage and make married people happier. Then, we focus
Descriptive statistics by country
more closely on happiness in marriage. We ask what makes
Happiness by Marital Status
GDP Per Religious
Genderpeople happy in marriage and how this varies in two specificCountry
CapitaClimateClimateSingleCohabiting Marriedcountries: Japan and the United States. We conclude with aAustralia
42,279
0.10
-0.10
5.09
5.34
5.45
discussion of policies related to family behavior, informed byAustria
46,019
0.18
0.09
5.54
5.88
5.71
our research findings.
Belgium
43,430
-0.50
0.01
5.22
5.43
5.27
An extensive research literature supports the popular
Brazil
8,114
1.51
0.74
5.39
5.24
5.55
Chile
9,645
1.28
0.59
5.47
5.55
5.65
belief that marriage makes people happier than cohabiting
Czech Republic
18,139
-1.71
0.00
5.12
5.15
5.14
with a partner or being single. Marriage and family scholars
Denmark
55,992
-0.92
-0.63
5.28
5.51
5.45
argue that married people are happier; they enjoy more
Finland44,491
0.14
-0.25
4.86
5.41
5.35
intimacy and they take better care of themselves because
France41,051
-0.88
-0.22
5.08
5.34
5.42
they have someone relying on them. But it’s also the caseGermany (East)
40,873
-1.15
-0.71
5.15
5.34
5.26
that married people are happier for reasons not intrinsic to
Germany (West)40,873
-1.15
-0.18
4.92
5.05
5.17
Hungary
12,868
-0.56
0.38
5.03
5.20
5.28
the experience of being married but rather because of theLatvia11,616
-0.17
0.16
4.86
4.71
5.03
social support married people receive compared to everyone
Mexico
8,000
1.71
0.50
5.57
5.20
5.63
else. Married people are in part happier because many social
Netherlands
47,917
-0.83
-0.15
5.22
5.36
5.41
policies have a pro-family bias and bestow greater benefits
New Zealand
29,000
0.01
-0.07
5.40
5.57
5.57
on married persons (as discussed in Part 1), and because
Norway79,089
-0.58
-0.45
5.25
5.41
5.41
social norms and religious beliefs uphold marriage as thePhilippines
1,745
2.00
0.16
5.27
4.57
5.48
Poland11,273
1.45
0.07
4.86
5.29
5.15
preferred way to live an adult life.
Portugal
21,414
0.94
0.35
5.15
5.12
5.39
We set out to investigate to what extent the benefits ofRussia
8,676
-0.36
0.27
4.88
5.09
5.12
marriage for well-being are largely intrinsic to marriage andSlovakia
16,176
0.48
0.18
4.90
4.68
5.02
universal, and to what extent they are due at least in part toSpain
31,774
-0.40
-0.03
5.28
5.29
5.37
the social support received by married people and therefore
Sweden43,654
0.11
-0.51
5.15
5.33
5.37
context-specific. This question has critical policy
Switzerland
63,629
-1.18
0.06
5.43
5.55
5.67
implications. Marriage promotion policies have been
Taiwan16,400
-0.08
-0.05
5.19
4.86
5.24
UK
35,165
0.31
-0.20
5.21
5.50
5.60
propagated in the US, particularly as part of the 1996
US46,436
1.50
-0.24
5.46
5.53
5.70
Personal Responsibility and Work Opportunity Act, based on
Source: Redistributing Happiness: How Social Policies Shape Life Satisfaction by Hiroshi Ono and Kristensocial research that marriage makes people happier and
Schultz Lee (Santa Barbara: Praeger, 2016) and Lee and Ono,“Marriage, Cohabitation andHappiness: A Cross-National Analysis of 27 Countries”, Journal of Marriage and Family 74 (2012)
healthier. If, instead, the well-being benefits of marriage are
20 Japan SPOTLIGHT • September / October 2020

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

Recent Socioeconomic Issues 1

Although married people reported higher happiness levels thansingles in all countries, married people were not on average happierthan cohabiters in every country. Indeed, cohabiting people reported
greater happiness than their married counterparts in countries like
Austria and Belgium but reported considerably lower levels ofhappiness than married people in other countries like Taiwan and
Mexico. This evidence of variation in the happiness gap between
married and cohabiting individuals across countries was our firstpiece of evidence that the marriage premium in happiness is in factcontext-specific and not universal. Based on this initial descriptive
finding, we set out to uncover what characteristics of the social
context could help explain this cross-national variation in marriage
and happiness.

As seen in the Table, we focused our attention on economic
development, societal beliefs about gender, and religious beliefs asreflections of the different social, economic and institutional contexts
for marriage. We hypothesized that, due to the support for marriage
found in many religious faiths, married people in more religious
societies would report a greater happiness premium than marriedpeople in more secular societies, in comparison to single andcohabiting people. Similarly, traditional beliefs about gender are basedon traditional marriage and the beliefs that men and women should
perform specialized roles to create interdependency in marriage, with
one spouse specializing in work and the other on the household andfamily. We therefore hypothesized that married people would report agreater happiness premium in societies with more traditional beliefs
about gender than in more gender egalitarian societies. Gross
Domestic Product was included as a country-level control for

economic development in all of our analyses.
Our results provide support for the hypothesis that the association
between marriage and happiness varies based on the societal
religious and gender context. Due to the different experiences of men
and women in marriage, we analyzed men and women’s happiness indifferent relationship statuses separately. For men, marriage isassociated with greater happiness regardless of levels of societal
religiosity or gender egalitarianism. For women, the relationshipbetween marriage and happiness varies depending on the social
context. In societies with more traditional beliefs about gender, thehappiness gap between married and cohabiting women is muchgreater than in societies with more egalitarian gender beliefs. Chart 1
illustrates how the happiness gap between married and cohabiting
women increases in increasingly gender conservative societies. In themost egalitarian gender contexts (the cross-hatch area of the graph),
there is no measurable difference in the reported happiness ofmarried and cohabiting women.
Similarly, the difference between married and cohabiting women’shappiness varies as a function of the societal religious context. Chart 2
illustrates the widening happiness gap between married andcohabiting women in increasingly religious societies. Again, in themost secular countries (those countries falling in the cross-hatch
region of the graph), no measurable difference in the happiness ofmarried and cohabiting women was found.
Together these results support the hypothesis that the relationshipbetween marriage and happiness varies depending on the social
context for women. For men, marriage is associated with greater
happiness than cohabitation regardless of social contexts. But why isthere this difference between men and women, with women’shappiness more closely tied to the social context? We argue thatwomen are more harshly judged when violating the religious and

CHART 1

CHART 2

Predicted Relative Odds of HappinessPredicted happiness for married &cohabiting women as a function ofgender context
0.30
MarriedCohabiting

0.25
0.20
0.15
0.10
↑

0.05
0.00

East Germany-0.71
Egalitarian

↑

US

↑

Brazil

0.74
Traditional

Societal Beliefs About Gender

Predicted happiness for married &cohabiting women as a function ofreligion context
Predicted Relative Odds of Happiness

Descriptive Statistics by Country

0.30
MarriedCohabiting

0.25
0.20
0.15
0.10
0.05
0.00

↑↑

US Mexico↑

Czech Republic

-1.71

2.00

Secular

Religious
Religious Context

Note: The cross-hatched area of the graph indicates a non-significant happiness gap.

Note: The cross-hatched area of the graph indicates a non-significant happiness gap.

Source: Redistributing Happiness: How Social Policies Shape Life Satisfaction by Hiroshi Ono
and Kristen Schultz Lee (Santa Barbara: Praeger, 2016) and Lee and Ono,“Marriage,
Cohabitation and Happiness: A Cross-National Analysis of 27 Countries”, Journal of
Marriage and Family 74 (2012)

Source: Redistributing Happiness: How Social Policies Shape Life Satisfaction by Hiroshi Ono
and Kristen Schultz Lee (Santa Barbara: Praeger, 2016) and Lee and Ono, “Marriage,
Cohabitation and Happiness: A Cross-National Analysis of 27 Countries”, Journal of
Marriage and Family 74 (2012)

Japan SPOTLIGHT • September / October 202021

Recent Socioeconomic Issues 1

gender norms in a society and perhaps better rewarded when
conforming to these norms. Men may be given more leeway inviolating societal religious beliefs and non-marital cohabitation may
not even be viewed as a violation of traditional masculinity in many
countries.
Based on these results, we conclude that the happiness benefits ofmarriage are due in large part to the social support given to married
couples in some contexts, rather than being intrinsic to the maritalbond and being universal. We also found that women’s happiness islower when they have dependent children in the home whereas men’shappiness is not affected. We conclude that marriage in and of itself
does not cause people to become happier. Instead, marriage has
different meanings and benefits associated with it in different
countries.

Marital Happiness in Japan & the US
In other research, we focus our analytical lens on what makes men
and women happier (and less happy) in marriage in just two
countries: Japan and the US. We were again interested ininvestigating gender differences in marriage, building off the same
themes in the first analysis, in countries with different life course
patterns and norms surrounding work and family life. This
comparative analysis provided us with the leverage to more precisely
analyze what features of the social and institutional context areassociated with greater (and lower) happiness among men andwomen in marriage.
Compared to women in the US, Japanese women marry later, areless likely to cohabit before marriage, and are also less likely to
divorce. Although Japanese women’s labor force patterns havechanged dramatically across the 20th and into the 21st centuries,
Japanese women have a high likelihood of exiting the labor force after
becoming mothers. Japanese women are also more likely to performthe majority of unpaid household labor compared to their Westerncounterparts. According to 2016 OECD statistics, Japanese men
spent just 41 minutes per day on housework, compared to Japanesewomen’s 224 minutes.
Structural factors underlie these differences in women’s life course
patterns in the two countries. Japanese taxation policy implicitly
discourages married women from seeking full-time employment.
Although this policy has changed over time, if a spouse earns under athreshold amount, their income is tax exempt and they can beclaimed as a dependent, providing an incentive for women (who on
average earn less than their husbands) to restrict their labor force
earnings. Some Japanese employers also give their regular
employees allowances for dependents that are reduced or eliminatedif the spouse is employed. These distortions both underlie and reflect
implicit gender beliefs in Japan that are more supportive of agendered division of labor than in the US. In other words, there ismore support for the belief that men should work outside of the home
and women should care for the family than in the US. Some scholars
have argued that the role of housewife is both more professionalized
and associated with greater power due to the wife’s customary
22 Japan SPOTLIGHT • September / October 2020

control of the household budget in Japan compared to in the US. This
may in part explain the relatively greater support for this domesticrole for women in Japan.
For this project, we analyzed data from the 2000, 2002 and 2004
General Social Survey in the US, and the 2000, 2001, 2002 and 2003
Japanese General Social Survey (JGSS). We again estimated separate
models for men and women and analyzed marital happiness. What we
found was surprising.
In the US, men and women report being equally happy in marriage
but, in Japan, women are less happy in their marriages than men.
American women’s marital happiness is less tied to their husband’s
income than is Japanese women’s happiness. Instead, American
women and Japanese men report greater marital happinessassociated with their own income. What is surprising is that bydefault, American men report greater marital happiness when theirwife is not working, with the one exception being when the wife iscontributing a great deal to the household budget. Chart 3 shows thatfor American men, their wives have to earn at least 70% of thehousehold income for men to report greater happiness than when
their wives are not working outside the home.
These findings point to competing values rooted in the social
structure, what some have called sociological ambivalence.
Americans are generally more supportive of gender equality but, at
the individual level, men still report greater marital happiness when
their wives are not working or when their wives are earning a lot ofmoney. Japanese women report greater happiness in marriage when
their husband earns more and they are not working themselves. And
Japanese men report greater marital happiness when they themselves
earn money, independent of their spouse (similar to American
women). And yet, despite Japanese women’s endorsement ofspecialized roles in marriage, they report lower levels of happiness intheir marriages than do their husbands.
Perhaps these findings reflect the uneven pace of change in Japanand the US: different groups within a society may change their beliefs
at different rates. This may help explain why American women are
CHART 3

Relationship between wife’s contribution
to household income & men’s happinessin marriage in the US
ΔU

0

70%

100%

Level of happiness
if wife is notworking

Wife’s contribution tohousehold income (%)

Source: Redistributing Happiness: How Social Policies Shape Life Satisfaction by Hiroshi Ono
and Kristen Schultz Lee (Santa Barbara: Praeger, 2016) and Lee and Ono,
“Specialization and Happiness in Marriage: A U.S.-Japan Comparison”, Social Science
Research 37 (2008)

Recent Socioeconomic Issues 1

happier in marriage when they earn higher incomes and contribute totheir families financially while American men are divided: some arehappier in marriage when their wives are specialized in domestic
labor while others are happiest when they are economicallydependent on their wives. Similarly, this might explain why Japanesewomen report greater happiness in marriage when economicallydependent on their spouses and yet report lower levels of marital
happiness overall compared to men. Over time, as social structures
adapt to changing beliefs about gender and changes in family roles,
we would expect some of these seeming disjunctures to disappear.
One finding that cut across social contexts, however, was that thepresence of children in the household was associated with lower
levels of marital happiness, particularly for women.

Social Policies & Life Satisfaction
Our research points to particular policies that target family
formation and childbearing. First, we return to the question of theefficacy of marriage promotion programs. As we mentioned earlier,some countries (notably the US) have invested federal dollars inprograms to promote marriage based on the understanding thatmarriage makes everyone better off. However, we add to the critiques
voiced by other family scholars who have questioned both theeffectiveness of marriage promotion programs in encouraging
marriage and in improving child well-being. To those critiques, we
add our finding that it is not something intrinsic to marriage andtherefore universal that makes married people happier. Instead, it is
the support received by married people, and the stigma faced bythose who are not married, in certain social contexts marked byessentialist beliefs about gender and strong religious beliefs that
explain the marriage premium in happiness. This finding suggeststhat it is not marriage promotion that we need but rather greater
economic and social support for families who are not married tonarrow the gap in happiness by marital status. Specifically, programs
that boost the well-being of single parent and cohabiting families, aswell as policies and programs that provide poor families with accessto education, jobs, mental healthcare and other key resources would
make children and parents happier overall.
Our research on parenthood and happiness also offers some
guidance to governments concerned about fertility decline. Many
existing policies to address fertility decline attempt to offset the risingcosts of childrearing by providing couples with baby bonuses andpaid childcare leave. But there is no strong evidence that thesepolicies are associated with a higher fertility rate. We argue that, in
addition to considering the rising costs of children as driving fertility
decline, we should also consider the link between ideology, happinessand childbearing. We showed that children are associated with lower
levels of happiness for women cross-nationally, except in the social
democratic welfare states of Scandinavia where the state provides
generous institutional support (see Part 1). We argue that this isbecause women perform the majority of the unpaid, time-inflexible
family labor associated with childbearing. As sociologists, we areinterested in identifying the structural pressures associated withmothers’ unhappiness around the world.
Social policies that reduce work-family conflict and make thehousehold division of labor more gender equitable could makeparenthood more desirable for women. However, parental leave
policies (over six months) have been shown to exacerbate rather than
reduce gender inequality in parenting. Instead, paternal leave policies
could give couples a chance to establish a more equal division ofhousehold labor early in the child’s life and potentially contribute tochange in cultural conceptions of men’s involvement in childrearing
and housework. In addition to paternal leave, policies or collective
agreements to reduce the maximum work week could reduce workfamily conflict and make men in particular more available forhousehold labor. Indeed, as we discussed in Part 1, the policies of thesocial democratic welfare states, including paternal leave policies andsubsidized childcare, give parents greater flexibility in balancing workand family. As our research shows, the negative effect of children on
happiness disappears in the countries with high levels of public
spending. This is particularly relevant for Japan. As the country
invests in building a social infrastructure to overcome super-low
fertility, removing the negative effect of children on happiness will beeffective in providing incentives for women to have more children.
What about our finding that Japanese women are happier inmarriage when they have a more specialized division of labor? It is
important to note that we also found Japanese women are less happyin marriage overall compared to men and that their marital happiness
was further diminished by the presence of children in the home. Other
scholars have argued that Japanese women are experiencing
ambivalence rooted in a desire for equality and the structural barriers
preventing them from achieving it. In response to this ambivalence,
Japanese women are postponing marriage and fertility or forgoing it
altogether. Policies targeting the gendered division of labor and workfamily conflict have the potential to make families happier andtherefore encourage family formation and childbearing. These policies
also have the potential to change cultural conceptions about who ismost suited to care for young children and what kind of balance
between work and family is appropriate.
Acknowledgement: The JGSS are designed and carried out at theInstitute of Regional Studies at Osaka University of Commerce incollaboration with the Institute of Social Science at the University ofTokyo under the direction of Ichiro Tanioka, Michio Nitta, Hiroki Sato,and Noriko Iwai, with Project Manager Minae Osawa. The project is
supported financially by a Gakujutsu Frontier Grant from the Japanese
Ministry of Education, Culture, Sports, Science and Technology forthe 1999-2003 academic years, and the data sets are compiled anddistributed by the SSJ Data Archive, Information Center for Social
Science Research on Japan, Institute of Social Science, the Universityof Tokyo.
Kristen Schultz Lee, Ph.D. is associate professor of Sociology at the
University at Buffalo, SUNY.
Hiroshi Ono, Ph.D. is professor of Human Resources Management at
Hitotsubashi University Business School and affiliated professor of Sociology at
Texas A&M University.

Japan SPOTLIGHT • September / October 202023

March/April 2021

https://www.jef.or.jp/jspotlight/latestissue/

Geopolitics with the Pandemic

January/February 2021

The Year of Economic Recovery?

November/December 2020

Exploring the New Economy
Under Covid-19

September/October 2020

White Paper on International
Economy & Trade 2020

July/August 2020

The World Trade System with Covid-19

May/June 2020

Digital Technology
Will Create a New World
After the Global Spread of Covid-19

Visit Japan SPOTLIGHT website!
https://www.jef.or.jp/journal/

Japan SPOTLIGHT has been making great efforts toprovide our readers with valuable information andknowledge ever since 1982. To fulfill our mission toprovide such information to more people eager to learn
about the global political economy, our journal became
free to access on our website from the January/February
2017 issue in January 2017. We hope many of you willvisit our website and enjoy reading our bimonthly English
E-Journal Japan SPOTLIGHT, published on the 10th of
every odd month.

Japan Economic Foundation (JEF)
Editorial Section
5th Floor, GINZA OMI Bldg., 3-7-3 Ginza, Chuo-ku, Tokyo, 104-0061 Japan
Tel: +81-3-6263-2518 Fax: +81-3-6263-2513 email: japanspotlight@jef.or.jp