12 December 2011, Hotel Okura Tokyo
Weighty and vexing questions hang over Japan. Can the nation solve its energy-supply problem? Can it resolve its fiscal imbalances and rethink its regulatory regime? Where is the leadership? Under the fearsome title, “The Curse of the Status Quo”, the Economist Conferences convened its Japan Summit on 12 December at Tokyo’s Hotel Okura to debate such critical issues, including Japan’s place in this ever-changing world. The meeting was chaired by The Economist Tokyo Bureau Chief Henry Tricks.
The opening panel pondered whether poor leadership is to blame for Japan’s economic sluggishness, and whether its whole parliamentary system needs an overhaul.
The session on energy peered into the future of Japan’s utilities, whether to scrap the nuclear energy option, and the potential for green innovation.
The governors of Miyagi, Hyogo and Oita prefectures joined in a special presentation on decentralisation, making the case for loosening Tokyo’s stultifying grip on the regions.
Town planning and the ageing population were also addressed, with experts considering how Japan might take advantage of technology to develop a more efficient social and physical infrastructure.
The afternoon debate on restoring public finances heated up thanks to the pointed remarks of Richard Katz, editor-in-chief of The Oriental Economist Alert. Japanese participants – an academic, a Liberal Democratic Party shadow minister, a securities company chief economist – presented relatively optimistic but unexciting pictures of Japan’s near-term policy options with regard to taxation, public debt and the social security system. Katz took issue with the eagerness of the Ministry of Finance to raise the consumption tax rate, recalling that tax increases in 1997 contributed to severe recession.
“The government must commit to raising taxes, but it should stimulate business first,” he said. “And the consumption tax is the wrong tax to raise.”
He also noted that Japan has much better ways to raise revenue. Some trillions of yen could be gained, for example, by introducing a citizen identification system that would reduce tax evasion. He also suggested freeing up huge areas of land around Tokyo that are needlessly zoned as farmland, at a minimal property tax rate. Such land seldom changes hands because of punitive capital gains tax rates.
The government, no longer dependent on the votes of the landholders concerned, should “make that land easier to sell, and to develop, by lowering the capital gains tax and raising the property tax. That will free up land and stimulate development,” he said.
This discussion moved seamlessly into the next, as Katz joined LDP Policy Research Council chairman Toshimitsu Motegi and McKinsey & Company Japan managing partner Georges Desvaux to discuss the future of Japan’s economy in broader terms.
Katz argued that what Japan needs is a “productivity revolution”. The lavish amounts spent by young people on relative trifles, he said, is not a good sign. That expenditure is money not being saved for buying a house or raising a family, because for many young people those things appear to have permanently receded beyond reach.
Motegi noted that the Japanese car industry is competitive because it has gone out and taken on the world, whereas stay-at-home sectors, such as pharmaceuticals, have ossified.
“Opening the domestic market is the way to make Japanese companies competitive. They must face international competition,” he said, adding that a lot of consolidation is necessary in sectors where Japan has far too many domestic players.
Desvaux voiced optimism that Japan can make big strides in improving corporate governance, with consequent benefits similar to those experienced in Europe. He also refused to concede that Japan’s ageing population and shrinking workforce are cause for pessimism.
“Japan should embrace ageing and gender equality as ways to stimulate the economy,” he said. “The total work force may be shrinking, but capable and educated women are still not participating fully.”