What makes Japanese economy sustainable?

Cat: ECO
Pub: 2013
#1915b

Hiroyuki Itami (伊丹敬之)

19x30u

What makes Japanese economy sustainable?

日本企業は何で食っていくのか？

0. Introduction:
1. The Third Defeat:
2. The Lost Quarter Century:
3. Power Generation Productivity (PGP) may decide industrial structure:
4. To Aim Pizza-type Globalization:
5. Complex industry is Japanese strength:
6. Japanese infrastructure industry:
7. China is geopolitical center of gravity:
8. The Center of industrial science - Chemistry:
9. Japanese Internal Disease:

0. 序文:
1. 第三の敗戦:
2. 失われた四半世紀:
3. 電力生産性が産業構造を決める:
4. ピザ型グローバリゼーションを目指す:
5. 複雑性産業が日本のベース:
6. インフラ産業の日本:
7. 地政学的重心としての中国:
8. 産業科学の重心としての化学:
9. 日本の内なる病:

• This book describes a blueprint for revival of Japanese economy, particularly after the serious damage after the Great East Japan Earthquake.

Résumé

Remarks

>Top 0. Introduction:

• New growth strategy is still uncertain. Omnidirectional efforts is not correct; strategy should be more specific. Power Generation Productivity (PGP), Pizza-type Globalization, Complex Industry, etc. is urged.

0. 序文:

• 新たな成長戦略は明確でない。全方位の努力は正解ではない。戦略は特定方向を示すべきである。電力生産性(PGP)、ピザ型グローバリゼーション、複雑性産業等が急務である。

>Top 1. The Third Defeat:

• One of the turning point of history:
  • Japan experienced 11 years after the Lehman shock (2008/9/15) as the turning point of history.
  • In 2008-09: Japanese mining & industrial production decrease 30% in a year after the Lehman shock.
  • In 2011/3/11: the Great East Japan Earthquakes (Mw 9.0) occurred in Japan, and cause serious meltdown disaster (INES Level-7) of four Fukushima Daiichi nuclear plants.
  • In 2011: Japanese major electronics companies (total deficit ¥1.6T of Panasonic, Sony, Sharp) suffered huge deficit.
    • Not only these three companies, but also Hitachi, and NEC suffered much.
    • In later 1990s, Japan lost semiconductor industry, and since the middle of 2000 Japan lost TV and mobile phone terminals industries.
• >Top The turning point does not appear suddenly; there has been precursor and process that leads to the point.
  • In 2007/8: French Paribas Bank announced stop the payment of subprime loans (Paribas Shock).
  • Japan suffered the biggest damage of the Lehman Shock, which was comparable to the Oil Shock in 1973.
    • In 2007/7: one month before the Paribas Shock, Sharp decided investment ¥400B for flat TV factory in Sakai.
    • In 2008/Q2, the yen rate raised from ¥120 to ¥108/US$.
    • >Top In 2011/10 the yen rate raised to ¥75.32, the highest peak. (as safe-haven currency)
    • In 2011, US G-bond dropped in the rating from AAA to AA Plus.
  • The biggest disaster if not the earthquake but the nuclear meltdown:
    • In 2010, Japanese electricity was produced 30% by nuclear plants, and was scheduled 50% by 2030.
    • In 2012, Japan suffered big trade deficit for the first time in several decades, mainly due to the increase of fossil fuel.
      • Higher energy cost of Japan promoted further overseas expansion.
    • In 2011, sovereign risk arouse, in Greece, Spain, Portugal, and Italy.
    • In 2011, Japanese government debt balance became 2.3 times (now 2.4 times of GDP). (Cf.: Greece is 1.7 times)
      • It is said financial crisis is coming in 5 years, or contrarily no financial crisis by MMT (Modern Monetary Theory)
    • >Top In 2011, the Third lost battle; after the first 1945/8 and the second in 1971/8 Nixon Shock and in 1973/11 Oil Shock. (Double NO shocks; floating exchange rate and 5 times expensive oil)
      • In 1971-73 crisis: Japanese heavy industries (oil consuming industry like steel, petrochemical) lost competitiveness due to rising yen and oil price.
      • But high value-added industry like automobile, electronics became major player of export.
      • Tour de force after the oil shock: (1965-2008; 1973=100)
        • GDP index (50→239.6)
        • Production in manufacturing index (50→165.0)
        • Energy consumption in manufacturing index (50→90.5)
        • Energy consumption rate is decreasing though the production increases.; contributed Japanese competitiveness even after the oil shock.

1. 第三の敗戦:

>Top 2. The Lost Quarter Century:

• Crises has occurred every six years:
• 1973: First Oil Shock: →development of energy-saving technology
• (+6) 1979: Second Oil Shock:
• (+6) 1985: Plaza Accord and evaluation of yen: →increase of domestic demand and public investment
  -------------- start of the Lost Decades in Japan -------------------------
• (+6) 1991: Collapse of Bubble Economy in Japan; and Collapse of USSR
• (+6) 1997: Asian Currency Crisis:
• (+4) 2001: Collapse of IT Bubble (US) and September 11 Attack (US)
• (+7) 2008: Lehman Shock and Collapse of Financial Bubble (US)
• (+3) 2011: Great East Japan Earthquake, and European Financial Crisis: rout of electronics industry
• Japan stagnates since 1990 and was left behind:
  • Since 1990: Economic growth of Japan become lower than Germany.
  • 2008-09 & 2011: minus growth of Japan.
    • While, only Japanese yen up-evaluated in advanced countries.
    • In 2011, trade deficit the first time in 48 years since 1963; triple minus (trade, GDP growth, and fiscal balance) plus scar of the earthquake, nuclear disaster, and power crisis.
  • But still maintains export ratio 14% (due to non-price competitiveness of Japan):
    • 2000-2011: Export increase ¥14T, of which ¥10T (73%) is for China.
    • 1985-2012: Export to four areas (China, US, EU, ASEAN) 72-83%
      • Export to US (37% in 1985→15% in 2011) and export to China (11%→25%)
      • Leading role has changed since 2007: export to China became No. 1.
      • Electronics export share was 25% in 1990s → 18% in 2012.
      • Chemical products 5.5% in 1985 →10% in 2012.
      • Mature industries (Steel, Shipbuilding) retain export ratio 5-3%
  • Change of export industries:
    • Major export industries have changed until 1985.
    • But no major changes of main exporters occurred since 1990, which means that dynamism of industrial changes has declined.
    • In 1975, steel industry export share was 17% →but decreased 9% in 1985.
• >Top Trend of five major manufacturing industries in Japan:

• Change of export ration by major industries:
  • In 1985, automobiles, electronics, machinery industry has around 20% share each. Chemical industry has constantly increased its export share from 5.5% in 1985 to 10% in 2012.
  • Mature industries such as steel and shipbuilding retains its export share around 3-5%.
• Employment by industries: total employment was 58M in 1985, and 63M in 2011. (Japanese total population was 121M in 1985, and 128M 2011. (nearly half of the population was employed)
• Value-added shares:
  factory price is usually 40-50% of selling price; and the number of employee is counted by companies not less than 4 employees, which is 73% of total employee.
  • Manufacture industry shows generally higher in productivity.
• Labor productivity:
  Chemical industry shows the highest labor productivity, which needed large capital equipment as well as automobile industry.
  • More resources have been invested in the industries with higher labor productivity.
• Employment share:
  • Share difference in the five major manufacture industries has decreased. (Electronics minus automobile industry: 9.8% →4.7%)

2. 失われたた四半世紀:

• GDP Growth (every 5 years):

• Employment by industries:

• Manufacture industry:
  14.5M (1985)→10.5M (2011)

• 製造業５大産業の比較

1. 輸出シェア %
2. 付加価値シェア %
3. 相対労働生産性 (製造業平均=1)
4. 雇用シェア %

• 電力料金(産業用)国際比較:

• 日本の長期的人口推移:

>Top 3. Power Generation Productivity (PGP) may decide industrial structure:

• Change of industrial structure:
  • Electricity supply crisis occurred after the Great East Japan Earthquake; which affected industrial structure of Japan.
  • Supply chain confused by the planned power blackouts promoted decision to overseas production.
    • Domestic industries are shifting to more electricity-saving factories; which is accelerated by the trend of labor shortage.
    • Welfare and medical industries are expected to increase, but which are mostly supported by public funding.
    • It is needed to promote industries which do not depend of the public fund; such industries should be globally competitive corporations.
      • IN 2012, MHI and Hitachi announced to merge business of thermal power plant, to avoid domestic share war of attrition.
• >Top Power Generation Productivity (PGP): >Fig.
  • The lost decade was a decade of sudden fall of PGP.
  • Total power consumption increased 27% in 1990s, while PGP increased 12%; which means the industries consume more electricity but did not grow so much.
  • In 1985 large power users (>500 kwh/year) was 37%, and household users 20%, while in 2010 industry uses 30% and household uses 26% (Power Utilities campaigns all-electric home. )
• PGP by industry: >Fig. Recent GDP PGP is about 440 ¥/kWh.
  • Equipment industry making low value-added products shows lower PGP, while less equipment industry making high value-added products shows higher PGP.
  • At the time of after the Oil Shock in 1973/79, Japan attained economic growth with decreasing energy consumption; and national resources shifted to more value-added industries such as electronics and automobile from energy-consuming industries such as steel and petrochemical.
    • In latter 1970s to earlier 1980s: the share of electronic industry rapidly grew from about 10% to 17% (the largest manufacturing industry), due to the development of semi-conductor, mostly used for measurement and control to save energy.
    • Japanese automobile industry also jumped after the oil shock, whose value-added share increase 7.2% in 1972 to 9.1% in 1984.
    • These vitality came from the efforts to overcome energy restriction by two oil shocks.
    • The key work is PGP:
      similar version of efforts are urged to develop new value-added industries to overcome power restriction by Fukushima nuclear plant disaster; such as technologies (equipment, device, material, system, sensors, etc.) for new sustainable power generation and power storage.
    • Higher yen rate issue:
      requires domestic factory of more value-added industries.
    • Global warming issue:
      Globally less CO2 emission industries are urged.
  • Horizontal division in terms of PGP efficiency:
    • It will be reasonable selection that PGP higher process of development and production should remain domestic, while lower process go to overseas.
    • If there are comparatively competitive products of lower PGP industry, which should remain in domestic factories; such as electric-magnetic steel sheet used for motors, or high-tensile steel place use for automobile body; or high-performance chemical materials.
    • In material industry, the shift to relatively higher PGP area is needed; i.e., from manufacturing primary materials to metal or chemical processed products.
  • Fortune is unpredictable and changeable:
    • We should stick to restrictive power supply and PGP, which would be an incentive to pursue sustainable energy and battery technology to cut off the peak of electric supply.
      

3. 電力生産性が産業構造を決める

• 電力生産性 (PGP)
  付加価値額／ 大口電力使用量 (¥/kWh)

• 産業別電力生産性PGP (¥/kWh)

• GDP電力生産性(PGP)国際比較 ($/kWh)

• Densely populated countries tend to show higer PGP
• Chinese (as of 2013) PGP is about 30% of Japan; which mean Japanese power-effective equipment, materials and services are needed in Chinese market; just like Japanese fuel-efficeint automobiles became popular in US market after the oil shock.

>Top 4. To Aim Pizza-type Globalization:

• Japan is rather delayed in globalization:
  • Japan needs to import primary energy resources using by the export revenue. (>Energy Self-Sufficiency)
  • Export is the first step of globalization; to establish export strategy in strong yen environment.
• >Top Does globalization lead to hollowing-out of the domestic industry?
  • Regarding to primary effect of direct investment, surely there is a risk of hollowing-out of the industry.
  • There will be secondary effect of globalization:
    • Change of employment by globalization (1995 vs. 2009): the globalized companies increased its employment 13%, while non-globalized ones were flat or a slight increase.
    • As the secondary effects, globalization may increase supply of parts, support of design & development from domestic; which needs more domestic employment, or new services related to the globalization.
    • Hollowing-out of the industry could be an image created by media reports, by exaggerating small cases as the general trend.
• Pizza-type globalization:
  • Hollowing-out is the image of doughnut; there is a hollow hole in the center as domestic and the fringe is overseas.
    • In US globalization, textile and TV industries disappeared from US, and new industries as finance and IT filled cavity of the center.
    • Japan has pursued pizza-type globalization, not the doughnut-type one; pizza dough extends like a circle without a cavity.; and there is some toppings in the center, which represents important function of domestic organization.
    • International division of labor should be networked by each production process considering local speciality.
      • Eg.: Komatsu, global construction machinery company, makes designing and core parts like engine, hydraulic equipment, or control device in Japan, and procuring general parts and assembling machines in overseas factories according to local needs.
      • Eg.: Apple also makes designing, software development in California, procuring parts from Japan and Korea, then making final assembly in China.
    • Most of Japanese companies continued rationalization, adopting more labor saving technologies, and tried to respond domestic demand; but the domestic market itself tended to shrink continuously, decreasing domestic employment. These trends cannot be simply described as the hollowing-out phenomenon.
  • To maintain global competitiveness:
    • To maintain technology, design sense, marketing ability. Korean challenge (Samsung, etc.) nonprice competitiveness.

4. ピザ型グローバリゼーションを目指す:

• Comparison of Globalization: Ratio (%) of GDP

• >Top Energy Self-Sufficiency of major countries:

>Top 5. Complex industry is Japanese strengh:

• Industries which will be topping of pizza-type globalization
  1. Industrial sector which utilizes accumulatied industries and technologies in Japan.
  2. Industrial sector which utilizes features and specialties of Japanese way of production
  3. Having higer PGP (Power Generation Productivity)
  4. Being the origin of pizza-type globalization
• The key word is complexty: industrial sector which uses complex machine, material, infrastructure, and services. (Complex industry)
  • Japanese unique complex industries: hybrid car, convenient store, home delivery service
  • Typical complex industry in Japan: automobile and chemical industries.
• >Top Opposite movement?:
  • ICT tends to dissolve and simplify complex industry into module industries.
  • made flat panel TV, semiconductor, PC as module industries.
  • Complex industry should combine comodity production to attain economical mass production of complex products, using 'industrial technology'.
    • Collaboration of designing, development, prototyping, and production (DDPP).
    • Complex products tend to be various kinds and small quantiy, convenience, and premium price; usually accepted by senior & rich people.
    • Asian countries are going to be aging society after Japan; thus Japan is the front-runner of production for senior people.

5. 複雑性産業が日本のベース:

>Top 6. Japanese Infrastructure Industry:

• Japanese industry as the infrastructure for east Asian companies:
  • vicinity of east Asian countries shortens economic distance between industries.
  • engineers can frequently visit each other on every weekend; such as designing and prototyping in Japan, and manufacturing in Asian consuming countries.
  • Export to Korea; of intermediate goods, material, and equipment machine:
    • Japanese trade surplus with Korea was ¥1T in 2000, and ¥3T in 2010. Korean economy has grown average 4% per annum during this period.
  • Export to China unique materials:
    
  • Japan exported 244 tons of iron scrap to China, which will be an important material used in electric furnace; which counts 36% China imports.
  • Similarly, Japan had imported iron scrap from US long time after the end of WWII.
  • Japan exported 336 tons of used paper to China, which counts 20% China imports. China has insufficient forest resources for making pulp.
  • Such materials are rather heavy; vicinity of trade partners is essentially important.
• Japanese industry as technical supplier:
  • Designing and prototyping in Japan, then local production for local demand.
  • Type of technical supply:
  1. export of technology embedded in parts or machines.
  2. supply of technology as intellectual property, and support of technical transfer.
  3. various derived demand related technical transfer; demand for related material, intermediate goods, parts, machines, equipment as well as maintenance & services including technical advisor and training.
  • Japan has induced various social infrastructure, particularly from US after the end of WWII.
  • Major supplier of social infrastructure: GE, Siemens, Alstom (Fr, railway), Toshiba, Hitachi, MHI, KHI, Bombardier, Veolia (Fr, water supply).
  • Ecosystem of financial center, and silicon valley.
• Such social infrastructure suppliers become global suppliers after fulfilment of domestic demand
• Challenges to overcome:
  • Cost competitiveness:
    • Monopoly constitution and covoy system of Japanese large corporations.
    • Dependence on the government
  • Over specification: optimized to domestic standards:
    • Severe internal quality assurance
    • Engineers' mindset to pursue latest technology
  • Slow decision and less global challenge spirit:
    • Binding from Japanese infrastructure monopolies (power utility, telecom, and railway)
    • most of technical development has been promoted collaborating with these monopolized companies. (e.g.: SIM lock by mobile companies)
  • Insufficent global experinece and communication.

6. インフラ産業の日本:

>Top 7. China is geopolitical center of gravity:

• Two shift of center of gravity:
  • Geopolitical center of gravity: shift from US to China
    • In latter 20C, US mostly affected Japanese industrial structure, until end of 1980s.
    • Japan tried hard to catch up US technology and industry after the WWII:
      1. textile
      2. steel
      3. home electronics (TV, VTR)
      4. automobile
      5. semiconductor, and computer
    • In the first half of 21C, China mostly affects Japanese industry.
  • Scientific center of gravity: shift from physics to chemistry
• China became No.1 trade partner since 2007:
  • Trade amount with China is growing: in 2011 ¥31T vs. US ¥16T, and in 2018 ¥39 vs. US ¥25T
  • Trade balance with China, US, Korea, and World in 2018: (>Fig.)
  • China had been Japanese production center for export until 1990, but became sales center for Chinese market since 21C.; US has been market for Japan, China is the center of production and market for Japan.
  • Though such close economic relationship with China, general people's impression (image or sympathy) is not so good, as a mutual trade partner.
    • Japan has played as infrastructure for Chinese industry; export various industrial parts and materials (automobile parts and steel)
    • LIB production center: from Shànghǎi to Qīngdǎo area; by Tesla-Panasonic, and Samsung factories; Japanese parts will be exported for these factories, such as Hitachi Chemical, Mitsubishi Chemical (negative electrode), Asahi Glass (positive electrode), Asahi Kasei (separator), Kureha (functional resin)
    • Numerical controller is already 100% equipped in Japan, but about 30% in China (as of 2013)
      

7. 地政学的重心としての中国:

• Trade Partner (1995-2018):;

>Top 8. The Center of Industrial Science - Chemistry:

• The technology of electronics industry depends on engineering of electricity and communication, whose knowledge comes from physics of electromagnetism and electronic phenomenon.
  • Automobile industry depends on engineering of mechanics, metallurgy, and chemistry.
  • In late 20C, Japanese industry depended mostly on engineering of electronics and communication; electronics industry had been shining star; producing 11% value-add of all industries until 1990.
    • Semiconductor, control devices, various sensors are embedded in almost all industrial and consumer products. (Digital and microelectronics revolution)
    • In 1970, Japanese universities trained 13,000 electronic engineers per annum and joined electronics industry; whose number was 1.7 times bigger than that of US.
    • In 2011, Japanese electronics industry showed declining, due to breakthrough of east Asian countries.
  • >Top It is imaged that physics is monotheism, while chemistry is polytheism; the latter need accumulation of various logics and experiences.
  • Nobel laureate:
    • Physics; 11 people; from 1949 Hideki Yukawa to 2015 Takaaki Kajita; 8 people since 2000
    • Chemistry: 8 people; from 1981 Kenichi Fukui to 2019 Akira Yoshino; 7 people since 2000
      
    • In 21C relatively Japanese Nobel Laureates in Chemistry is increasing.
• Industrial Chemistry:
  • Chemistry is particularly related to the bases for environment, energy, health industries.
    • Carbon fiber material or functional material are used in various field of high-tech areas.
    • Chemistry is applied in energy storage, new high-tech materials, effective production process, etc.
    • Chemistry is express in 'Nature' as 'Unsung Hero'.

8. 産業科学の重心としての化学:

• 日本のノーベル賞受賞者 (化学賞８名):
  • 2019: 吉野彰; Liイオン電池
  • 2010: 根岸英一; 有機合成Pd触媒
  • 2010: 鈴木章: 有機合成Pd触媒
  • 2008: 下村脩; 緑色蛍光Protein
  • 2002: 田中耕一; 生体高分子同定
  • 2001: 野依良治; 不斉触媒水素反応
  • 2000: 白川秀樹; 導電体高分子
  • 1981: 福井謙一; 化学反応過程理論
    
    
• 20世紀は物理学、21世紀は化学の時代

>Top 9. Japanese internal disease:

• There are key words for Japan to revive its economic dynamism; PGP, Pizza-type globalization, Complex industry, Social infrastructure, China, Chemistry.
  • >Top But there is a cause of concern about the revival: Japanese organizations or decision making was established subject to 1) ordinary peaceful situation, 2) consideration of interest adjustment, 3) dependence on the central function.
    • If we encountered at abnormal situation like the Great East Earthquake, we should take crisis action, considering 1) emergent response, 2) priority decision (like 'triage'), 3) on-site judgement.
    • Sometimes, Japanese decision making is criticized like 'too slow, too little syndrome'.
    • Exit strategy is more difficult and important: Japanese population is shrinking due to less children; private companies, public organizations, or educational institutions are all obliged to shrink, but should keep efficiency as much as possible.
  • Japanese typical internal disease are: 1) executives mindset (escape from specialist of adjustment), 2) organizational defense (pursue imbalanced growth), 3) energy level (recognize abnormal situation; more dopamine).

9. 日本の内なる病:

• 病の本質: 経営者･組織防衛･エネルギー水準
• 危機への対応
• Triage: Process of determining the most important things from amongst a large number that require attention.
  • Red: Emergent - Immediate
  • Yellow: Urgent - Delayed
  • Green: Non-urgent - Minimal
  • Black: Expected to expire - No treatment

Comment

• 14 factors needed for global competitiveness:
  • Personnel
    • Labor: labor shortage due to less population
    • Organization: obstinate old vs. not-learning young
    • Corporate identity: new class division -regular/irregular employment
    • Education: lifelong education, or MOOC
  • Goods
    • Power/Energy supply: nuclear vs. sustainable energy
    • Material: rare metals and recycle
  • Money
    • Finance procurement: digital money
    • Direct investment: cloud funding
    • Tax system: revise of vested right; Basic Income (BI)
    • Exchange rate: US$ or Basket
  • Information
    • Digital technology:
    • Design sense:
    • Visualization production process
    • Sales knowhow: smart contract
    • Demand: share economy
    • Global communication: multi language

• 国際競争力に必要な要因
  • 人:
    • 労働力: 人口減による労働力不足
    • 組織: 頑迷なシニア対学ばない若者
    • 組織帰属: 正規対非正規雇用による分断
    • 教育: 生涯教育
  • 物:
    • 電力エネルギー供給: 原発対再生エネルギー
    • 原材料: レアメタルとリサイクル
  • 金:
    • 資金調達: デジタルマネー
    • 直接投資: クラウドファンディング
    • 税制: 既得権の是正; ベーシックインカム
    • 為替レート: 米ドル対バスケット
  • 情報:
    • デジタル技術:
    • デザインセンス:
    • 生産プロセスの可視化:
    • 販売ノウハウ: スマート契約:
    • 需要: シェア経済
    • グローバルコミュニケーション: 多言語