Social Contribution by Business Managers
December 7, 2016
Mr. Kakutaro Kitashiro
Executive Advisor, IBM Japan, Ltd.
The hottest topic now in the information sector is naturally Artificial Intelligence (AI). I am sure many of you follow articles on AI quite closely, so let me talk about my involvement with two initiatives since I retired.
Firstly, I serve as an external director for three venture businesses to assist young companies. The top five companies in terms of market capitalization in the USA are ventures. While the Japanese government emphasizes the importance of nurturing venture businesses in its growth strategy, it is quite challenging to become successful.
One of the reasons is the difficulty in securing sufficient funding as start-ups. Financial institutions cannot take the risk of providing loans to ventures without any performance. Consequently, startup capital is provided mainly by individuals like friends, family and relatives. To assist individuals lend around 500,000 to 1 million yen, the so-called “angel” tax incentive plan was revised in 2008. The amount invested to start-ups can be deductible from income taxes, just like donations. Unfortunately, not many people have used this superior tax system as it is not widely known.
Another difficulty is that existing companies hesitate to utilize high-quality products and services provided by ventures. This is why a person with social credibility can serve as an external director of a venture company to assist its sales. For example, I first contact Presidents or Chairmen I personally know and ask them to introduce responsible officers to facilitate the negotiation and sales activities of ventures I assist.
As my second initiative, I try to nurture the younger generation by serving as Director for ICU (International Christian University). Japanese society has undergone dramatic changes and there is an increasing demand for educational reform from the economic community. Yet, much remains to be done because the operational structure of many Japanese universities hampers reform. To be more specific, the Faculty Council has been responsible for making decisions on educational research, while the President has limited authority for decision-making. Fortunately enough, the School Education Act was revised in April 2015 and clarified that the President would make the final decision. I must say another outstanding issue is that in many universities, faculty members vote for the President. It is not rare that ambitious candidates ready to propel major reform fail to be supported by conservative faculty members. We must formulate a structure where capable Presidents are elected to exert strong leadership in promoting the reform process. I believe people with diversified backgrounds, including the business circle and public administration should serve as university directors and Council members to transform the operational structure of universities.
I serve as an external director of venture companies to assist startup businesses as well as a university director to nurture the younger generation. I think these activities can be one form of social contribution made by a former business manager.
Financial Statements of the Government of Japan
December 7, 2016
Mr. Akihiro Hirano
Certified Public Accountants, Tax Accountant
Hirano CPA Office
When we search the Ministry of Finance website, we find the government’s “consolidated financial statement” with different statistical tables. The document has been formulated over 15 years, but I wonder how many of you have actually seen it. I worked for an auditing firm that helped its formulation and got hold of the documents to make some analyses.
The statement consists of (1) Consolidated Balance Sheet, (2) Consolidated Cost Statement, (3) Consolidated Assets and Debts Balance Statement as well as Consolidated Funds Income and Expenditure Statement and Notes. Tables (1), (2) and (3) look similar to Balance Sheet (BS), Profit and Loss (PL) Statement and Surplus Statement (SS), but the only and biggest difference is that revenue appears in the SS and not in the BS. Financial statements of local municipalities are based on the same formula.
The double-entry bookkeeping was an innovative discovery as it incorporates the BS and PL and enables an organization to see how financially sustainable and well-balanced its operation is. To take advantage of this innovative formulation, the revenues were moved from SS to PL, with further deduction of costs to identify the “operating revenues.” Then the valuation difference was adjusted to calculate the “current revenues.”
Let me make comparison between the data for March 2015 and those of the past 15 years. As of March 2015, assets totaled 932 trillion yen and debts totaled 1,371 trillion yen, marking excessive debt worth 439 trillion yen. Yet the current account balance marked a surplus of 12 trillion yen, a positive figure after nine years. Please note that the largest current balance deficit of negative 45 trillion yen was marked in 2011, followed by a remarkable recovery for the last three years thanks to the Abenomics policies. I must say the worrying sign is that debts remain at a high level of 50 trillion yen, despite improvements in operating balances. This could be linked to the monetary easing policy taken by the Bank of Japan.
As we look at the latest general account budget, revenue and expenditure equal at 96 trillion yen. If we convert this figure into double-entry bookkeeping, PL marks deficit of 21 trillion yen (62 trillion yen of revenue and 83 trillion yen of costs). Let me highlight that the PL deficit was supplemented with the same amount of public bonds, with the aim to maintain the PL balance above the level of zero to make the finance sustainable. Abenomics has managed to improve the PL balance by stimulating the economy and increasing tax revenue, but it has kept increasing borrowing. Actually the debt increase rate has come to exceed the inflation rate.
Social security cost is the largest portion among operating costs, marking 46 trillion yen for consolidated PL and 32 trillion yen for general account budget. According to the Ministry of Health, Labor and Welfare data, estimation for FY 2015 totals 112 trillion yen (including 48 trillion yen for pensions; 50 trillion yen for medical and nursing care; 5 trillion yen for child care). A nation-wide perspective is required for a sustainable social welfare system, rather than just focusing on maintaining individual PL balances. The government is advised to identify every possible measure to increase revenue while reducing expenditure and waste to improve the overall balance.