The Power to Compete

An Economist and an Entrepreneur on Revitalizing Japan in the Global Economy

Hiroshi Mikitani, Ryoichi Mikitani

• Publisher: Wiley
• Year: 2014
• ISBN:
  9781119001157
• Edition: 1
• Topic: Business
• Subtopic: International Business
• Index: Business

"If you're as interested in Japan as I am, I think you'll find that The Power to Compete is a smart and thought-provoking look atthe future of a fascinating country." - Bill Gates, "5 Books to Read This Summer" Father and son – entrepreneur and economist – search for Japan's economic cure

The Power to Compete tackles the issues central to the prosperity of Japan – and the world – in search of a cure for the "Japan Disease." As founder and CEO of Rakuten, one of the world's largest Internet companies, author Hiroshi Mikitani brings an entrepreneur's perspective to bear on the country's economic stagnation. Through a freewheeling and candid conversation with his economist father, Ryoichi Mikitani, the two examine the issues facing Japan, and explore possible roadmaps to revitalization. How can Japan overhaul its economy, education system, immigration, public infrastructure, and hold its own with China? Their ideas include applying business techniques like Key Performance Indicators to fix the economy, using information technology to cut government bureaucracy, and increasing the number of foreign firms with a head office in Japan. Readers gain rare insight into Japan's future, from both academic and practical perspectives on the inside.

Mikitani argues that Japan's tendency to shun international frameworks and hide from global realities is the root of the problem, while Mikitani Sr.'s background as an international economist puts the issue in perspective for a well-rounded look at today's Japan.

• Examine the causes of Japan's endless economic stagnation
• Discover the current efforts underway to enhance Japan's competitiveness
• Learn how free market "Abenomics" affected Japan's economy long-term
• See Japan's issues from the perspective of an entrepreneur and an economist

Japan's malaise is seated in a number of economic, business, political, and cultural issues, and this book doesn't shy away from hot topics. More than a discussion of economics, this book is a conversation between father and son as they work through opposing perspectives to help their country find The Power to Compete.

Chapter 1
The Power to Innovate

Japan Again

Hiroshi Mikitani (“Hiroshi”):

Let's talk about the theme of these conversations. I want to talk to you about why the Japanese economy has seen such persistent stagnation, and what we should do to revive it. But first, how are you feeling? How is your health?

Professor Emeritus Ryoichi Mikitani (“Ryoichi”):

Oh, it's all right, I suppose. I'm in a relatively good shape. I'm really happy that I can talk with you about the Japanese economy like this. I'm looking forward to it.

Hiroshi:

For the past half a year [early 2013], I have been serving as a member of the Industrial Competitiveness Council, one of the three Abenomics control towers, and I have been participating in the debate there on Japanese economic growth. We announced our compiled growth strategy in June 2013. At that time, I also created a document, as best I could, to serve as a starting point for discussion—a proposal that I called “Japan Again.” In that proposal, I wrote from my perspective as a business leader about what sort of growth strategy I would create if it were all up to me.

Ryoichi:

It must have been quite a lot of work. I saw the news on television and read about it in the newspapers with great interest.

Hiroshi:

Prime Minister Abe's original idea was that there would be four members on the council from the private sector, but in the end a total of ten were appointed. I have the suspicion that behind this was an intention on the part of the government bureaucracy to increase the number of people on the council, appoint more people with differing opinions, and thereby dilute the arguments of the private-sector side.

Ryoichi:

So there was conflict between the bureaucracy and private-sector members?

Hiroshi:

In the beginning, I believe that Prime Minister Abe wanted the council to work with unusual resolve. But there was the strong sense that it was all being led by the government bureaucracy. In the end, we had a free exchange of opinions, but there was not really the mind-set that we were out to produce radical policies. The main scenarios we talked about were ones for which the bureaucracy or Ministry of Economy, Trade and Industry (METI) led the way, with the private sector serving only to complement the members from the government bureaucracy.

Ryoichi:

So the proposals were toned down.

Hiroshi:

Yes, and as a result, some of our greatest challenges remain. One of the causes of the stagnation of the Japanese economy is industrial policy led by the government bureaucracy, which doesn't do anything except stifle competitiveness in the private sector. Look at any of the industries that METI has gotten involved in—every one of them has been ruined. I believe that the government need only create platforms for industry; there is no need for the government to set industrial policy. Regulation is fundamentally a bad thing. I want to move steadily forward with regulatory reform.

Ryoichi:

I don't think that the issue is so simple as to be able to say that “regulation is bad,” but I do believe that we must move forward with regulatory reform.

Hiroshi:

Another cause behind the stagnation of the Japanese economy is the lack of sufficient managerial power. Look at the inventions of the DVD or fiber-optic cable: Japanese companies have superior technological capabilities. Our problem is corporate leadership. The biggest problem right now is how to enhance the power of management.

For example, take the Industrial Bank of Japan [now known as Mizuho Bank after merging with Fuji Bank and Dai-ichi Kangyo Bank], which was originally the main bank of Nissan Motors. The bank sent the management over to Nissan and tried to reform it, but nothing worked. And then Carlos Ghosn was hired as CEO, and Nissan completely turned around. The same can be said about Apple. When the company brought back Steve Jobs, it was at the brink of death, but as CEO, Jobs succeeded in a remarkable revival. In other words, it is all about who is leading a company. I think we need to remind ourselves of that.

Ryoichi:

The revival at Nissan was definitely a surprise.

Hiroshi:

That is why I indicated at the Industrial Competitiveness Council that we needed to bring in more managers who had achieved a corporate revival using bold ideas, as well as more of the young managers who are running leading companies.

Ryoichi:

By the way, I know that you are acting as representative director of an economic group, the Japan Association of New Economy (JANE), but how does that differ from Keidanren?¹

Hiroshi:

JANE is centered on the companies and venture/start-up firms that have developed Japan's e-business and IT industries. We have already been joined by more than 600 companies. We are an economic group that aims to contribute to the development of the Japanese economy through the creation of diverse new industries. We stand in opposition to state-led industrial policies that only protect vested interests. And in that sense, we are the opposite of Keidanren. We do not promote policies that will protect conventional Japanese industries. Instead, we encourage innovation, the reform of Japan's industrial structure, and boosting our economic metabolism. We are creating policy proposals to encourage the continued creation of the entrepreneurs who are needed to develop new industries. And we continue to work toward the realization of a more global and open marketplace through regulatory reform.

The Keys to Revitalizing Japan

Hiroshi:

I want to talk about what would be the keys to reviving Japan and what the options are. I proposed five factors in my proposal, “Japan Again”:

1. Efficiency of the country
2. Innovation capability
3. Operation capability
4. Global expansion and market capability
5. Brand power

I believe that economic growth means the creation of innovation.

Ryoichi:

Joseph Schumpeter said that innovation means new connections. He believed that economic growth came about through the combination of new things.

Hiroshi:

If that is true, then we need to create an environment in which innovation can occur. With innovation comes the birth of new markets and economic growth. The elimination of regulations is crucial to this goal. At the Industrial Competitiveness Council, I proposed the IT autobahn concept as an initiative symbolizing these ideas. Just like the German autobahn, which has no tolls or speed limits, my idea calls for the construction of the world's fastest and cheapest communications infrastructure.

The next important factor is operation capability. As the labor market solidifies, we are reaching a point in which corporations are finding it impossible to let go of old workers and hire new ones. We obviously need to hire more women, but that alone won't be enough to solve our labor shortage. We need to go further to relax dismissal regulations and promote the fluidity of the labor market. We also need...