Table Speech

Economy Deflation, Mind Deflation

August 11th,2004

Chairman of rhe Japan Economy Research Center
Mr.Akira Kojima

 With January 2000 as the low point. Japan’s economy seems to have reached a daybreak. Nobel Prize winner Joseph Stieglitz recently published a book called “The Roaring Nineties”, in which he says that the 90’s were a time in which the world economy enjoyed a ‘mega-growth’. Japan certainly did not share in this growth.

 I have paid attention to the explosive growth of overseas investment since the end of the cold war. In the year 2000 alone, a sum of more than a trillion dollars was thus invested, which was more than the total of such since 1988.

 In Japan’s case, we invested much abroad, but for the world in general to keep competitive after the fall of the Soviet regime much effort was given to attracting foreign investment and techniques.

 A good example is China which imported money, technology and know how which they lacked, while ‘made in China’ does not necessarily mean made by Chinese, by this means creating jobs and competitiveness.

 After the war, Japan imported technology, discarded the stranglehold on our economic structure and was able to create a comprehensive economic and industrial structure. But a different process is taking place in Asian countries. This change is shown by their leapfrogging from a farming society to a high technology one, and this is a distinct change in the 21st century form that preceding it.

 We had removed ourselves from this process, but in the last 2 years or 33 months until this August, our economy has expanded. This tendency will certainly continue for another year. This tendency was not due to government spending but due to civilian research and development with investment.

 It was symbolic that this February, for the first time since Japan-China relations were normalized, the trade balance between our two countries resulted in our favor.

 An economist has said that a new pattern is emerging in the trade between Japan and China, and that is one of vertical division of work. High added valued products are made at home, while lesser ones are made in China, the final product is made by combining the products of both sides.

 Recently, Japanese firms have started investing in capital, and I feel for the first time in 10 years a change is taking place in our economic structure.
A survey was made by the World Economic Forum (WEF) in 2002 where it had the research institutes of various nations take a poll on the effect of globalization. Asking whether the effects of globalization had a positive or negative effect on one’s livelihood, this study was made in 14 nations.

 Japan was third from the bottom in this survey which results were as follows:
(P: positive; N: negative)
Holland (P.87%; N.13), U.S.A. (P.76%; N.21%), China (P.75%; N.10%), Korea (P.75%; N.21%), Japan (P.32%; N.12%), Russia (P.32%; N.13%)

 To another question: What is the impact of globalization on your national economy? Will it make it better or worse?
(B: better; W: worse)
China (B.83%; W.10%), U.S.A. (B.65%; W.27%), Korea (B.62%; W.36%), Germany (B.59%; W.37%), Russia (B.46%; W.17%), Japan (B.40%; W.43%)

 Japan had been stagnant during the past ten years while this change took place, and therefore were very conservative in their approach.

 This was reflected in businessmen’s attitude to investing in capital, and when a government organization questioned about anticipated economic growth in the next 3 to 5 years, the reply was 5% a year following the bubble’s crash, but this went down to 1% in 2000. Such a low estimate reflects on capital investment and also research and research and development spending.

 But in the past year, such worries have become unnecessary, and consumer attitudes have also changed. Some economists fear that the savings ratio of our Japanese families have decreased, but this is a cyclic and structural issue, and the important thing is that spending increases.

 When we are pessimistic about the future, we tend to save more money, and the fact that people are spending more indicates that they are becoming more optimistic about the future, which is quite encouraging.

 However, the evaluation of our economy hit the bottom the last yearend and has since improved.

 Let me tell you how other nations think about our economy. The bubble fever lasted until 1993, and there were views that Japan would recover in a short time.

 However, our estimation plummeted as the situation failed to improve. Their evaluation of our economy plummeted and hit bottom last yearend but has since then improved.

 At recent international meeting they say, “At last the Japanese economy has improved”, and this conclusion has resulted in foreign investments to Japan showing an increase.

 I would like to introduce a person I have known for 20 years, who is an authority on economic issues, and he is Mr. Peter Drucker.

 Mr. Drucker has said that Japan has underestimated its economic potential.
It has overcome many crises with amazing speed and gained results unknown in modern history. Japan should reconsider its strengths and take positive action.
What worries me most is the prevalence of pessimism. Action is not born from pessimism. A sense of crisis is needed, as it is what has made Japan change. Pessimism makes one underestimate one’s self.

 Mr. Drucker is still activate the age of 95. When he was 25, he attended an exhibition of Japanese art in London which deeply moved him and has held a strong interest in Japan since then.
His first book was “The End of Economic Man” which criticizes Nazism and was praised by Winston Churchill. It is still being read today, after 60 years.

 Mr. Drucker pointed out that only Japan was able to modernize its society in a short period without a revolution or bloodshed. The recent message from Mr. Drucker to us is that he fears we are underestimating the strength of our own country.

 Deflation is a matter of the moment, while deflation of the mind is a matter which all of us must take care to control. For first time in ten years, we are reaching a daybreak. I look upon the Japanese economy as being on the verge of a new economic development.