C JA ON ENTER Center on P A NE S E C ONO

MY A MY Japanese N D B U SI NE SS Economy and Business A NNU 2M9 Uris Hall, 3022 Broadway Annual report 2013–2014 A L

New York, NY 10027 REPORT Phone: 212-854-3976 Fax: 212-678-6958 2013-2014 Web: www.gsb.columbia.edu/cjeb

CJEB Representative Office in Japan c/o Terumi Ota 1-19-18-1003 Shibuya Shibuya-ku, Tokyo 150-0002 Fax: 03-5467-6012 Table of Contents

Letter from the Directors 2 Workshops 41 Northeast Asia Relations Workshop 41 CJEB Team 4 Leadership and Staff 4 Lunchtime Seminars 42 Core Faculty 6 The Key Challenge for Abenomics: Demographic Tsunamis Hitting Japan and Other East Asian Countries 42 Research and Faculty Engagement 9 Stormy Seas: Japan’s Disputes over History and “Japan’s Abenomics: So Far So Good, but Will It Prevail?” Territory and the U.S.-Japan Alliance 42 by Hugh Patrick 9 The Un-sweetening of America: ITO EN’s Contribution Current Research Highlights 17 to the Beverage Market 42 Faculty Engagement 19 The Third Arrow of Abenomics: How Far Will It Reach? 43 Where Does All the Money Go? How Japanese Retailers Research Paper Series 20 Invest and the Effects of Abenomics 43 The New Global Financial Architecture 27 Monetary Easing and Communication Policy: A Review Based on Several Surveys 43 Events 28 Abenomics: One Year Later 43 Conferences 28 The “History Problem” (rekishi mondai), Nationalism, State Intervention and Private Enterprise: Japan, and Foreign Policy Preferences in Japan: Evidence the U.S., and China 28 from a Survey Experiment 44 Restoring the Japanese Economy 29 How a Start-up with Four Employees Grew to Become a Global Corporation 44 The Japan Project Meeting with Joint ESRI International Conference 29 How Sino-Japanese Turbulence Affects Trade Between the Two Countries 44 The Japan Project Meeting 30 Do You Washlet? TOTO’s Challenge in Breaking into ESRI International Conference 31 Mainstream America 44 Special Report 32 Symposia 36 Resources 45 Decrypting Cybersecurity: Are We Ready to Meet Faculty Advisory Committee 45 Tomorrow’s Emerging Threats? 36 Visiting Fellows 46 The Future of Nuclear Power 36 Research Associates 48 Fukushima Three Years Later: Staying Behind and Professional Fellows 49 Moving Forward 36 International Advisory Board 50 How to Buy Japan: Private Equity in a Global Economy 37 Promoting Exchange of Ideas 51 Hitting the Mark? The Third Arrow in Sharper Focus 37 CJEB in the News 51 Lectures 38 Enhancing the MBA Experience 52 Abe and the LDP Are Back: Now What? 38 Enhancing the Columbia Experience 53 Abenomics and the Japanese Market’s Potential 38 Visits from Japan to Columbia 54 The “Cool Japan” Strategy: Sharing the Unique Culture of Japan with the World 38 Fellowship and Scholarship Programs 54 Nuclear after Fukushima: Policies, Practices, and Problems 39 Library and Data Resources 55 Japan and the World 39 Discussion Groups 56 Using Information to Build Transnational Bridges 39 Japan Economic Seminar 56 Post-Fukushima Energy Policy of Japan: The Role of Monetary Policy Discussion Group 56 Nuclear Power 40 U.S.-Japan Discussion Group 56 Challenges and Perspectives for Japan: Is Reconciliation 40 Financial Support 57 Possible among Neighbors? 40 Corporate Sponsorship Program 57 Revolutionizing Japan’s Information and Communications Security Environment 40 Letter from the Directors (in Japanese) 58 Japan’s Fourth Strategic Energy Plan 40 “Japan’s Abenomics: So Far So Good, but Will It Prevail?” by Hugh Patrick (in Japanese) 60 Center on Japanese Economy and Business The preeminent academic center in the United States on Japanese business and economics

Established at Columbia Business School (CBS) in 1986 under the direction of Professor Hugh Patrick, the Center on Japanese Economy and Business (CJEB) promotes knowl- edge and understanding of Japanese business and economics in an international con- text. CJEB is a research organization widely recognized for its symposia, conferences, and lectures held both in New York and Tokyo, which provide prominent speakers from the public and private sectors a forum for collaboration and reflection on Japan, the United States, and the global economy.

With the leadership of Professor David E. Weinstein, director of research, CJEB supports research projects, student and faculty scholarship, and library and computer-based resource initiatives. Other CJEB core faculty members are Japan specialists drawn from Columbia’s Business School, Law School, School of International and Public Affairs, Department of Economics, and Department of Political Science. Funding and resources are provided by corporate sponsors, foundations, individuals, CBS, and Columbia University.

Since its founding, CJEB has developed, grown, and evolved in order to carry out its mis- sion effectively in a changing Japan and a changing world. In this way, CJEB has been able to build and maintain its status as the preeminent academic center in the United States on Japanese business and economics.

Further information about CJEB can be found on the Center’s website: www.gsb.columbia.edu/cjeb.

CJEB Annual Report 2013–2014 | 1 letter from the directors

Letter from the Directors

Dear Friends,

The Center on Japanese Economy and Business (CJEB) was established in 1986 at Columbia Business School (CBS) with the mission to promote knowledge and understanding of the Japanese economy and business systems in domestic, East Asian, and global contexts, with a special focus on the Japan–United States relationship. In essence, CJEB’s core mission is to create a vital platform for an exchange of ideas on Japan’s business systems and economic issues in two important ways. First, CJEB regularly brings Japanese business, government, and academic leaders to Columbia University to share their important perspectives with the Columbia and New York communities. Second, the Center projects American and international perspectives into Japan through conferences, research activities, and other collaborative projects. Hugh Patrick, Director As Japan, the United States, and the world have changed over these past 28 years, CJEB has taken on the wonderful challenge to develop, grow, and evolve in ways that enable the Center to continue to carry out its mission. At one time, Columbia was joined by other major institutions such as Harvard, Yale, Michigan, and Stanford in having economists specializing in the Japanese economy. However, as their faculty retired, our competitors did not maintain their interest with new appointments. Columbia is now the only major U.S. research university to have a full-time specialist on the Japanese economy in its economics department or business school. Columbia’s commitment to this field remains strong; Japan, the world’s third largest economy, is fundamentally important for the United States and the world. We take pride in the fact that CJEB continues to vigorously pursue an active and diverse agenda of Japan-focused public programs, research projects, and student and faculty support.

The 2013–2014 academic year featured a range of outstanding lectures, symposia, and conferences. David E. Weinstein, Director of Research CJEB held its annual conference in Tokyo on May 15, 2014, with keynote presentations by Haruhiko Kuroda, governor of the Bank of Japan, and Adam Posen, president of the Peterson Institute for International Economics. This conference, “Restoring the Japanese Economy,” also featured a number of distinguished panelists and was covered by journalists from leading media outlets. Further informa- tion can be found on p. 29.

On July 31 and August 1, 2014, CJEB cosponsored its annual Japan Project Meeting in Tokyo, led by David Weinstein with partners at National Bureau of Economic Research, the Center for Advanced Research in Finance at The University of Tokyo, and the Australia-Japan Research Centre at the Crawford School of Public Policy of The Australian National University. This research conference was presented jointly with the Cabinet Office’s ESRI International Conference “For Sustainable Growth of Japan’s Economy,” featuring, among other distinguished speakers, CBS’s Dean Glenn Hubbard. Further information on both the Japan Project and ESRI Conference can be found starting on p. 29, along with a summary from the ESRI Conference.

Highlights from the on-campus 2013–2014 program calendar include Professor Gerald Curtis’s ninth annual lecture on Japanese politics, “Abe and the LDP Are Back. Now What?” in September; a confer- ence, “State Intervention and Private Enterprise: Japan, the U.S., and China,” in October; a lecture by Ambassador of Japan to the United States Kenichiro Sasae, “Japan and the World,” in February; and the 15th Annual Mitsui USA Symposium, “How to Buy Japan: Private Equity in a Global Economy,” in April 2014. CJEB’s lunchtime zadankai seminar series continued to be very well attended, providing a forum for high-level business, government, and academic speakers to meet informally and openly share their insights with the Columbia community and members of New York City’s professional

2 | CJEB Annual Report 2013–2014 community. 2013–2014 zadankai speakers included Yosuke Honjo, the president and CEO of ITO EN (North America) Inc.; Professor Takatoshi Ito of the University of Tokyo; Keiko Tashiro, chairwoman and CEO of Daiwa Capital Markets America Holdings Inc.; Sayuri Shirai of the Bank of Japan’s Monetary Policy Board; and Daijiro Nogata, president and CEO of TOTO Americas Holdings, Inc. Summaries of these and many more CJEB events can be found in this annual report, starting on p. 28.

As is expected at a world-class research university such as Columbia, one of CJEB’s core mandates has always been the engagement in, support of, and dissemination of research. David E. Weinstein, whose own research you can read about on p. 17, organizes and runs CJEB’s strong research program on the Japanese economy and its business and management systems through projects, seminars and discussion groups, public programs, and library and computer-based resource initiatives. In addition, the Center hosts a Working Paper and an Occasional Paper series (pp. 20–26). CJEB will continue to provide venues and resources for research to main- tain its status as the preeminent academic center in the United States on Japanese business and economics.

As a facet of the CJEB research agenda, we awarded the first annual CJEB Doctoral Fellowships for students starting at Columbia in fall 2013. The fellowships (p. 54) are available to PhD students at CBS and the Columbia Economics Department who will develop Japan expertise, culminating in dissertations focused primarily on Japan. The Center developed this initiative to address the need to find and train the next generation of spe- cialists on the Japanese economy and business and management systems. These fellowships, along with CJEB Graduate Student Research Grants and Summer Stipends, are part of the way in which the Center supports students at Columbia. The Center is actively fundraising in order to facilitate continuance and further develop- ment of this initiative.

We had another successful year with our Visiting Fellows Program. CJEB annually selects members of the cor- porate, academic, and government sectors to spend a period of time in residence at CBS to pursue independent research. As in past years, the 2013–2014 fellows (p. 46) participated in CJEB research gatherings, presented at seminars on their research findings, attended lectures and public events, and audited courses. The Visiting Fellows continue to be an important part of the CJEB and CBS dynamic.

CJEB is well established at Columbia, in the United States, and with a global reach. The Center will continue to move forward under the joint leadership of us both, Hugh Patrick and David Weinstein, with an eventual transition to the sole leadership of David Weinstein, who is also currently chair of the Columbia University Economics Department.

We happily welcome Ryoko Ogino as CJEB director for administration to succeed Caroline Hasegawa, who is leaving to pursue an entrepreneurial venture after contributing an extraordinarily productive four and a half years at CJEB.

As always, the dedication, hard work, intelligence, and energy of the Center’s core faculty and staff, the resources provided by the Business School and the University, and especially the funding provided by corporate sponsors, foundations, and individuals all contribute to the ongoing success of the Center. We thank them all.

With warm regards,

Hugh Patrick David E. Weinstein Director Director of Research

CJEB Annual Report 2013–2014 | 3 CJEB Team

Leadership and Staff

Hugh Patrick is the founder and direc- tor of the Center on Japanese Economy and Business (CJEB) at Columbia Business School, codirector of Columbia’s APEC Study Center, and R. D. Calkins Professor of International Business Emeritus. He joined the Columbia faculty in 1984 after some years as professor of eco- nomics and director of the Economic Growth Center at Yale University. He completed his BA at Yale University (1951), earned MA degrees in Japanese studies (1955) and From left to right: Andy Wanning, Kahori Takahashi, Emiko Mizumura, Ryoko Ogino, Michelle Tam, Naoko economics (1957) and a PhD in economics Suga, Sayaka Tsuno, Alfred Tsai at the University of Michigan (1960). He has been a visiting professor at Hitotsubashi David E. Weinstein is grants, an Institute for New Economic Think- University, the University of Tokyo, and the the Carl S. Shoup Pro- ing grant, a Bank of International Settlements University of Bombay. Professor Patrick has fessor of the Japanese Fellowship, and a Google Research Award. been awarded Guggenheim and Fulbright Economy and chair Professor Weinstein is the author of numerous fellowships and the Ohira Prize. His profes- of the Department of publications and articles. His recent publica- sional writings include 18 books and some 60 Economics at Columbia tions include “Goods Prices and Availability in articles and essays. His most recent books University. He is also Cities,” Review of Economics and Statistics are How Finance Is Shaping the Economies of the director of research (forthcoming); “Exports and Financial Shocks,” China, Japan, and Korea (Columbia University at CJEB, director of the Japan Project at Quarterly Journal of Economics (2011); Press, 2013), coedited with Yung Chul Park, the National Bureau of Economic Research “Trade Finance and the Great Trade Collapse,” and Reviving Japan’s Economy: Problems and (NBER), and a member of the Council on American Economic Review Papers and Prescriptions (MIT Press, 2005), coauthored Foreign Relations. Previously, Professor Proceedings (2011); “Product Creation and and coedited with Takatoshi Ito and David E. Weinstein was a senior economist as well as Destruction: Evidence and Price Implications,” Weinstein. Professor Patrick served as one a consultant at the Federal Reserve Bank of American Economic Review (2010). of four American members of the binational New York, the Federal Reserve Bank of San Alicia Ogawa is CJEB’s Japan United States Economic Relations Francisco, and the Federal Reserve Board of senior advisor. Until Group appointed by President Carter and Governors. Prior to joining the Columbia fac- 2006, she was manag- Prime Minister Ohira, 1979–1981. He was ulty, Professor Weinstein held professorships ing director at Lehman a member of the Board of Directors of the at the University of Michigan and Harvard Brothers, where she Japan Society for seven three-year terms. In University. He also served on the Council of was responsible for November 1994 the Japanese Government Economic Advisors from 1989 to 1990. managing the firm’s awarded him the Order of the Sacred Trea- His teaching and research interests include global equity research. sure, Gold and Silver Star (Kunnitō Zuihōshō). international economics and the Japanese She is also an adjunct associate professor at He was awarded an honorary doctorate of economy. Professor Weinstein earned his PhD Columbia University’s School of International Social Sciences by Lingnan University, Hong and MA in economics from the University of and Public Affairs. Kong, in 2000 and the Eagle on the World Michigan and his BA at Yale University. He award by the Japan Chamber of Commerce is the recipient of many grants and awards, and Industry of New York in 2010. including five National Science Foundation

4 | CJEB Annual Report 2013–2014 Caroline Hasegawa Officers Shunsuke (Sean) Hirose joined CJEB in February MIA, International Security Policy 2010 and was direc- Emiko Mizumura BA, Political Science, Columbia University tor for administration Assistant Director for Programs until June 2014, when BA, American and English Literature, Mari Ishiguro ’ 14 she left to pursue an Otsuma University MBA, Columbia Business School entrepreneurial venture. MS, Information and Knowledge Strategy, Amy Kiyota Before coming to the Columbia University MA, Economics and Education, Business School, she worked at Columbia Kahori Takahashi Columbia University University’s Weatherhead East Asian Insti- Senior Administrative Manager tute, developing international programs and Sonya Kuki BA, Social Sciences, Waseda University symposia. Prior to that, she lived in Japan for MIA, International Security Policy, MA, Aaron Copland School of Music, three years, teaching English to middle school Columbia University City University of New York students and leading community-wide educa- tion programs with the Japan Exchange and Michelle Tam Peng (Victor) Lu Teaching (JET) Programme. She earned her Coordinator MS, Social Work, Social Enterprise BA magna cum laude from Carleton College in BA, Economics Administration, Columbia University art history with a focus on East Asian art and Minor in Japanese Emma Matsubara her MFA in creative writing at the Universi- Binghamton University BA, Mathematics, Columbia University ty of Arizona. She continues to visit Tokyo State University of New York regularly. (Joined as of October 2014) Pamela Sanchez Ryoko Ogino became MS/PhD Candidate, Mechanical Engineering, director for adminis- Andy Wanning Columbia University tration at CJEB in July Senior Program Officer Anne Smith 2014. She officially BA, Anthropology and Sociology, joined the Center as Lafayette College MPH, Health Policy Analysis, associate director MS, Sustainability Management, Columbia University for administration in Columbia University Tian (Alicia) Tian September 2010 after MIA Candidate, International Finance and successfully managing the Center’s Tokyo Japan Representative, Economic Policy, Columbia University conference in spring 2010. Prior to that, she Tokyo held positions at Shiseido and Sony Corpora- Sayaka Tsuno tion of America and brought with her a wealth Terumi Ota BA Candidate, Chemistry, Barnard College of experience in program production, PR, in- BA, Tsukuba University ternational marketing, and staff management. She obtained her BA magna cum laude from Interns the State University of New York, Buffalo, Mariko Fujimura with a major in human relations in multination- BS Candidate, Financial Economics, al organizational settings. Columbia University

Kaitlin Louise Harrison MA, East Asian Languages and Cultures, Columbia University

CJEB Annual Report 2013–2014 | 5 Core Faculty

CJEB’s seven core faculty members pro- Board of the Asahi Shimbun and the Advisory Healthy, Wealthy, and Wise: Five Steps to a vide the Center’s intellectual foundation Council for the Japan Foundation Center for Better Health Care System. His commentar- and are drawn from Columbia University’s Global Partnership. His articles and commen- ies appear in Business Week, The Wall Street Business School, Law School, Department of taries appear frequently in newspapers and Journal, The New York Times, the Financial Economics, Department of Political Science, magazines in Europe, Japan, and the United Times, the Washington Post, Nikkei, and the and School of International and Public Affairs. States. Daily Yomiuri, as well as on television and In addition to Hugh Patrick and David E. radio. From 2001 until 2003, he was chair- Professor Curtis has been or currently Weinstein, CJEB’s core faculty members are man of the U.S. Council of Economic Advisers. is a member of the Board of Directors of as follows: In the corporate sector, he is on the boards of the Japan Society, the Japan Center for ADP, BlackRock, KKR Financial Corporation, Gerald L. Curtis is International Exchange (USA), and the U.S.- and MetLife. Dean Hubbard is cochair of the Burgess Professor of Japan Foundation, and serves as councilor Committee on Capital Markets Regulation; he Political Science at to the U.S.-Japan Council. He has served as is a past chair of the Economic Club of New Columbia University consultant and advisor to numerous public York and a past cochair of the Study Group on and former director and private organizations in the United States Corporate Boards. of the Weatherhead and Japan. East Asian Institute. Merit E. Janow is dean Professor Curtis is the recipient of numerous He received his of Columbia University’s prizes and honors, including the Masayoshi PhD from Columbia School of International Ohira Memorial Prize, the Chunichi Shimbun University in 1969 and has been on the and Public Affairs (SIPA). Special Achievement Award, the Japan Columbia University faculty since 1968. He Dean Janow is an inter- Foundation Award, the Marshal Green Award is the author of numerous books and articles nationally recognized of the Japan-America Society of Washington, published in both English and Japanese on expert in international and the Eagle on the World award from the Japanese politics, government, foreign pol- trade and investment, Japan Chamber of Commerce in New York. He icy, and United States–Japan relations. He with extensive experi- is a recipient of the Order of the Rising Sun, divides his time between Columbia University ence in academia, government, international Gold and Silver Star, one of the highest honors and Tokyo, where he is active as a columnist, organizations, and business. In addition, she awarded by the Japanese government. speaker, and writer, and is a distinguished has had a lifelong involvement with Asia and is fellow at the Tokyo Foundation. Glenn Hubbard is dean an expert in that region. Dean Janow has been and Russell L. Carson a professor of practice at Columbia University’s Professor Curtis has held appointments at Professor of Finance SIPA and affiliated faculty at Columbia Law the Royal Institute of International Affairs, and Economics at School since 1995. She teaches graduate Chatham House, London; the College de Columbia Business courses in international trade/WTO law, com- France, Paris; the Lee Kwan Yew School of School. Dean Hubbard parative antitrust law, China in the global econ- Public Policy, Singapore; and in Tokyo at Keio, received his BA and omy, and international trade and investment Tokyo, and Waseda Universities, the Research BS degrees summa policy, among others. She has held a num- Institute for Economy, Trade and Industry, cum laude from the ber of leadership positions at the University. the Graduate Research Institute for Policy University of Central Florida and also holds Currently, she is director of the International Studies, and the International Institute for AM and PhD degrees in economics from Finance and Economic Policy concentration Economic Studies. Harvard University. In addition to writing more at SIPA, codirector of the APEC Study Center, In addition to his academic work, he has than 100 scholarly articles in economics and and chair of the Faculty Oversight Committee served as director of the U.S.-Japan finance, Dean Hubbard is the author of three of Columbia’s Global Center East Asia. Parliamentary Exchange Program, special popular textbooks, as well as coauthor of The Previously, she was director of the Master’s advisor to Newsweek for Newsweek Japan, Aid Trap: Hard Truths about Ending Poverty, Program in International Affairs and chair of columnist for the Tokyo/Chunichi Shimbun, Balance: The Economics of Great Powers Columbia University’s Advisory Committee on and member of the International Advisory from Ancient Rome to Modern America, and Socially Responsible Investing. Her research

6 | CJEB Annual Report 2013–2014 interests focus on international trade and corporate lawyer specializing in cross-border Professor in Corporate and Financial Law at investment, Asia, competition law, and eco- mergers and acquisitions with Skadden, Arps, Hong Kong University, and Erasmus Mundus nomic globalization. She has written several Slate, Meagher & Flom in New York. Before Fellow in Law and Economics at the University books and numerous articles and frequently becoming a lawyer, she worked at a think of Bologna. He was named Teacher of the Year speaks before business, policy, and academic tank, where she focused on U.S.-Japan trade in 2012 and 2010 at the Duisenberg School audiences around the world. and economic relations. She grew up in Tokyo, of Finance, University of Amsterdam, where Japan, and is fluent in Japanese. She has a JD he teaches annually. Professor Milhaupt has While at Columbia University, Dean Janow from Columbia Law School, where she was a been a member of several international proj- was elected in December 2003 for a four- Stone Scholar, and a BA in Asian Studies with ect teams focused on policy issues in Asia, year term as one of the seven members of the honors from the University of Michigan. She is including one charged with designing an “insti- World Trade Organization’s (WTO) Appellate a member of the Council on Foreign Relations tutional blueprint” for a unified Korean penin- Body, which is the court of final appeal for and the Trilateral Commission. sula. Prior to entering academia, Professor adjudicating trade disputes between the 153 Milhaupt practiced corporate law in New York member nations of the WTO. She was the Curtis J. Milhaupt is and Tokyo with a major law firm. He holds a JD first woman to serve on the Appellate Body. the Parker Professor from Columbia Law School and a BA from the She was involved with more than 30 appeals. of Comparative University of Notre Dame. He also conducted While on the Appellate Body, she organized Corporate Law, direc- graduate studies in law and international rela- a series of global conferences with leading tor of the Parker tions at The University of Tokyo. experts and senior government officials that School of Foreign and focused on the Appellate Body, the interna- Comparative Law, Fuyo Joseph E. Stiglitz was tional trading system, and economic global- Professor of Japanese born in Gary, Indiana, ization. From 1997 to 2000, Dean Janow Law, and director of the in 1943. A graduate served as the executive director of the first Center for Japanese Legal Studies, all at of Amherst College, he international antitrust advisory committee of Columbia Law School. He is also a member received his PhD from the U.S. Department of Justice that reported of Columbia University’s Weatherhead East MIT in 1967, became to the attorney general and the assistant Asian Institute. Professor Milhaupt’s research a full professor at Yale attorney general for antitrust. Her report rec- and teaching interests include the legal sys- in 1970, and in 1979 ommended the creation of a global network tems of East Asia (particularly Japan), com- was awarded the John of enforcers and experts, which is now the parative corporate governance, law and eco- Bates Clark Award, given biennially by the International Competition Network (ICN). nomic development, and state capitalism. In American Economic Association to the econ- addition to numerous scholarly articles, he omist under 40 who has made the most Prior to joining Columbia’s faculty, Dean Janow has coauthored or edited seven books, includ- significant contribution to the field. He has was deputy assistant U.S. trade representa- ing U.S. Corporate Law (Yuhikaku, 2009, taught at Princeton, Stanford, and MIT and tive for Japan and China (1989–1993). She in Japanese), Law and Capitalism: What was the Drummond Professor and a fel- was responsible for developing, coordinating, Corporate Crises Reveal about Legal Systems low of All Souls College, Oxford. He is now and implementing U.S. trade policies with and Economic Development around the World University Professor at Columbia University, Japan and China. She negotiated more than (University of Chicago Press, 2008), and where he is also the founder and copresi- a dozen trade agreements with Japan and Transforming Corporate Governance in East dent of the University’s Initiative for Policy China during a period of intense economic and Asia (Routledge Press, 2008). His research Dialogue, and a member and former chair of political tension between the United States has been profiled in The Economist, the its Committee on Global Thought. In 2001, and both Japan and China. Dean Janow is on Financial Times, and The Wall Street Journal, he was awarded the Nobel Prize in economics the Board of Directors of several corporations and has been widely translated. Professor for his analyses of markets with asymmetric and not-for-profit organizations. In 2009, she Milhaupt lectures regularly at universities and information, and he was a lead author of the became a charter member of the International think tanks around the world. Representative 1995 Report of the Intergovernmental Panel Advisory Council of China’s sovereign appointments include visiting professor at on Climate Change, which shared the 2007 wealth fund, China Investment Corporation Tsinghua University, Paul Hastings Visiting Nobel Peace Prize. (CIC). Early in her career, Dean Janow was a

CJEB Annual Report 2013–2014 | 7 In 2011, Time named Professor Stiglitz and moral hazard, which have now become of excessive financial interdependence, and one of the 100 most influential people in standard tools not only of theorists, but also highlighted the central role of credit avail- the world. He is now serving as president of policy analysts. He has made major con- ability. Freefall: America, Free Markets, and of the International Economic Association. tributions to macroeconomics and monetary the Sinking of the World Economy (2010) Professor Stiglitz was a member of the theory, to development economics and trade traced in more detail the origins of the Great Council of Economic Advisers from 1993 theory, to public and corporate finance, to the Recession, outlined a set of policies that to 1995, during the Clinton administration, theories of industrial organization and rural would lead to robust recovery, and correctly and served as CEA chairman from 1995 to organization, and to the theories of welfare predicted that if these policies were not 1997. He then became chief economist and economics and of income and wealth distribu- pursued, it was likely that we would enter senior vice president of the World Bank from tion. In the 1980s, he helped revive interest in an extended period of malaise. The Three 1997 to 2000. In 2008 he was asked by the economics of R&D. Trillion Dollar War: The True Cost of the Iraq then French President Nicolas Sarkozy to Conflict (2008, with Linda Bilmes of Harvard His work has helped explain the circum- chair the Commission on the Measurement of University) helped reshape the debate on stances in which markets do not work well, Economic Performance and Social Progress, those wars by highlighting the enormous and how selective government intervention which released its final report in September costs of those conflicts. His most recent book can improve their performance. In the last 2009 (published as Mismeasuring Our Lives). is The Price of Inequality: How Today’s Divided fifteen years, Professor Stiglitz has written He now chairs a High Level Expert Group Society Endangers Our Future, published by a series of highly popular books that have at the OECD attempting to advance these W. W. Norton and Penguin/Allen Lane in 2012. had an enormous influence in shaping global ideas further. In 2009 he was appointed by Professor Stiglitz’s work has been widely rec- debates. His book Globalization and Its the president of the United Nations General ognized. Among his awards are more than 40 Discontents (2002) has been translated into Assembly as chair of the Commission honorary doctorates, including those from 35 languages, besides at least two pirated of Experts on Reform of the International Cambridge and Oxford Universities. In 2010 editions, and the nonpirated editions have Financial and Monetary System, which also he was awarded the prestigious Loeb Prize sold more than one million copies worldwide. released its report in September 2009 (pub- for his contributions to journalism. Among In that book he laid bare the way globaliza- lished as The Stiglitz Report). Since the crisis, the prizes his books have received are the tion had been managed, especially by the he has played an important role in the creation European Literary Prize, the Bruno Kreisky international financial institutions. In two of the Institute for New Economic Thinking Prize for Political Books, and the Robert F. later sequels, he presented alternatives: Fair (INET), which seeks to reform the discipline Kennedy Book Award. He is a fellow of the Trade for All (2005, with Andrew Charlton) so it is better equipped to find solutions for National Academy of Sciences, the American and Making Globalization Work (2006). In the great challenges of the 21st century. Academy of Arts and Sciences, the American The Roaring Nineties (2003), he explained Professor Stiglitz serves on numerous boards, Philosophical Society, and the Econometric how financial market deregulation and other including the Acumen Fund and Resources for Society, and a corresponding fellow of the actions of the 1990s sowed the seeds of the Future. Professor Stiglitz helped create Royal Society and the British Academy. He the next crisis. Concurrently, Towards a New a new branch of economics, “The Economics has been decorated by several governments, Paradigm in Monetary Economics (2003, with of Information,” exploring the consequences including Colombia, Ecuador, and Korea and Bruce Greenwald) explained the fallacies of of information asymmetries and pioneering most recently became a member of France’s current monetary policies, identified the risk such pivotal concepts as adverse selection Legion of Honor (rank of Officier).

8 | CJEB Annual Report 2013–2014 Research and faculty Engagement

Japan’s Abenomics: So Far So Good, but Will It Prevail? By Hugh Patrick

Introduction The vision incorporated in Abenomics is with an indefinitely sustained 2 percent to restore Japanese self-confidence and annual increase in the consumer price index Three themes have dominated Japan’s eco- national pride, and to make Japan an inter- (CPI); flexible fiscal stability, implementing nomic performance over the year to late nationally respected country. A range of a difficult balancing act both to maintain September 2014. First is the ongoing economic policy objectives have been articu- adequate domestic demand and to reduce implementation of Abenomics. Second is lated, and reiterated, in the June 24 Cabinet the high government budget deficit and gov- the steady if unspectacular recovery from revitalization and growth policy statements. ernment debt/GDP ratio; and a comprehen- the 2008–9 global recession. Third is the The aim is to raise Japan’s profile in interna- sive growth strategy to achieve 2 percent consumption tax increase from 5 percent tional affairs as a constructive contributor real GDP growth. The government’s role in to 8 percent on April 1, which is the most to peace in Asia and in the world. The major structural reform is to reduce regulations gripping because of its dramatic short-term demographic goal is to stabilize the popula- and other obstacles, encourage innovation, impact on GDP growth. tion at 100 million within 50 years or so. In provide other incentives to increase private other words, end two decades of economic business investment and the supply of labor, The December 2012 election gave the stagnation and resignation, end Japan’s and support private consumption. Liberal Democratic Party control of both inward-looking “passive pacifism,” and halt houses of the Diet as the electorate sought Abenomics has achieved some success in population decline. positive, decisive, energetic leadership out of its early stages. Initial exuberant optimism the malaise of the past two decades. Shinzo This essay is on Japan’s economy and has waned, but those who say it is a failure Abe offered himself as that leader, with Abenomics, not on national security or for- are judging prematurely. Abenomics is not Abenomics as the means. Elections are next eign policy. However, Abe has stated that a quick fix; implementation will take years. scheduled for mid-2016. If things go well for they are fundamentally intertwined: eco- Monetary policy has successfully halted Japan and Abenomics, then Abe likely will nomic pragmatism and ideological commit- deflation, but achieving and then sustaining continue as prime minister until those elec- ment. To generate a sense of Japanese pride, an annual 2 percent increase in the CPI will tions, and probably until late 2018, when Abe has articulated views of Japanese colo- be a major challenge. The major challenge his final LDP presidency term ends. This nialism, World War II, and “comfort women” of fiscal policy persists: achieving suffi- provides an Abe administration the opportu- that are inconsistent with the evidence. cient private consumption and investment nity not only to address immediate economic Consequently, many Chinese and Koreans, demand growth so that fiscal consolidation policy issues, but also to vigorously pursue as well as Japanese, are suspicious of Abe’s can be implemented. Structural reform to solutions to Japan’s long-standing, funda- ultimate intentions and national goals. Abe achieve growth requires a wide range of pol- mental economic problems. will have to maintain a careful balancing act icies, so it is a thousand darts, not a single to keep broad public support and good rela- arrow. Coming into the 2012 election and since, tions with its neighbors. So far, he has been the Japanese mind-set has been shifting A fundamental objective of Abe’s growth somewhat inept. from resignation to a more positive, if skep- strategy is to revitalize the Japanese, to tical, mix of attitudes, expectations, and Abenomics was introduced as a multifac- awaken their Keynesian animal spirits to hopes. Abe is building on that by stressing eted approach to a multitude of problems. move ahead constructively, and take more Japan’s revitalization. His first Cabinet shuf- The three arrows of Abenomics are straight- risks. The government’s June 24 revital- fle, on September 3, reaffirmed his commit- forward: fiscal policy (the government’s pur- ization and growth report—representing ment to tackle major structural economic view), monetary policy (Bank of Japan), and Abenomics’ third arrow—is an important reforms. One major risk is that the political structural reform (private sector and gov- long-run policy statement. The report lays and security policies he has pursued to ernment). out major economic and social goals in the demonstrate that “Japan is back” will under- context of the coming several decades, not The objectives are also straightforward: mine him, especially as they play out with just the next few years. It is thus clearer and price stability, meaning replacing deflation, China and Korea. more credible than the 2013 report.

CJEB Annual Report 2013–2014 | 9 Abe’s immediate challenge is how rapidly and employment rate of about 3.3 to 3.5 percent. annual estimates of about 1.8 percent for how well the economy rebounds from the However, total cash earnings were flat, and as previous years; this was due mainly to regular consumption tax increase, as he faces major the CPI increased, wages declined slightly in increases based on length of employment, policy decisions by year end or early next real terms. Japan’s recovery from the 2008–9 rather than significant increases in entry-level year. The April–June contraction was severe. collapse was steady, but not very fast. wage rates. Cash earnings jumped in July with Recent forecasts were for 4.1 percent growth a large 7.1 percent summer bonus. Japan’s In contrast, 2014 has been a tumultuous year over the summer quarter, but the most recent total wage bill did not increase because of due to the April 1 increase in the consump- data suggest the rebound is disappointing. the rising share of part-time and contract tion tax from 5 to 8 percent (equivalent to Hope seems to be shifting to good final quar- workers. Excluding the consumption tax rise, an annual demand reduction of GDP of about ter performance. wages increased about as much as the CPI, 1.5 percent). Not surprisingly, GDP sharply so real wages would have been flat. However, Over the next six months, the Abe government increased at a 6.0 percent annual rate in the the consumption tax means that real wages faces some major decisions. Perhaps the most first quarter as Japanese accelerated pur- are decreasing at a 1.4 percent annual rate. important is whether to pursue the 2 percent- chases of durable goods and stocked up on That decline is transitory as the tax effects age point consumption tax increase sched- everything they could. GDP then plummeted are absorbed. uled for October 2015. Abe has indicated he in the second quarter, at a 7.1 percent rate will make that decision by year end. If third according to the September 8 preliminary Abenomics: Macroeconomic quarter GDP growth data, to be announced estimate. November 17, are disappointing, then he Management Accordingly, data for calendar and fiscal years may delay his decision until early next year. I (which end March 31) tell different stories. Ending deflation and maintaining sufficiently think the consumption tax increase will take Calendar GDP growth in 2013 was 1.5 per- strong private aggregate demand to make place. The Trans-Pacific Partnership (TPP) free cent and in 2014 will be about 0.8 percent. possible a reduction in the government budget trade agreement negotiations are important However, fiscal 2013 growth was 2.3 per deficit continue to be the two major objectives to Japan for both domestic and internation- cent, and fiscal 2014 growth will be close of macroeconomic policy. al-relations reasons. Another major immediate to 0. issue is that the planned cut in the corporate The Bank of Japan (BOJ) has been success- income tax rate must be revenue neutral, Economic output has been basically flat for ful in ending deflation. The inflation rate, which means policy changes to increase other the past year. Export volumes have been measured by core CPI (which excludes fresh tax revenues. stagnant due to slowing Asian and global food), turned positive in late spring 2013, demand, despite the sharp decline in the yen/ and improved to a 1.3 percent rate through The next section reviews the past year. I then dollar exchange rate from 80 to about 102, March 2014. The higher consumption tax consider the major themes of Abenomics, and in mid-September to 108. Corporate has added about 2 percentage points to the particularly the growth strategy, and the inter- profits have been very good, especially for CPI; excluding the tax, core CPI increased at national context. export manufacturers, and exporters are not a 1.1 percent rate in August. While inflation may subside temporarily, it will pick up again. The Year in Review yet reducing dollar prices significantly. On the other hand, yen prices for oil, LNG, food, and Private-sector experts forecast the CPI will Japan had good economic performance in other imports have risen. increase about 1.5 percent over the next year 2013. GDP grew at 1.5 percent, consid- or beyond. The optimistic BOJ forecast is The labor situation is fundamentally positive ered the high end of its potential growth that the 2 percent target will be achieved by but, as always, complex. The unemployment rate range, and the slack in the economy the end of 2015. In any case, BOJ governor rate is 3.7 percent, but many part-time work- (output gap) was substantially reduced. Core Haruhiko Kuroda is determined the target ers want full-time jobs. Employment increased CPI (which excludes fresh food) turned pos- eventually will be achieved, even if additional slightly for regular full-time workers and more itive in the second quarter, and by year end monetary stimulus is required. for nonregular (part-time and contract) work- was increasing at a 1.3 percent annual rate. ers who are paid significantly less. Keidanren The BOJ will continue to maintain extraordi- The unemployment rate continued to improve reported wages increased by 2.24 percent narily low interest rates, probably for at least to 3.7 percent by year end, close to the full in the 2014 spring offensive, above their another two years. I do not expect another

10 | CJEB Annual Report 2013–2014 round of major monetary stimulus soon unless as to prevent a bond market crisis is a major The growth strategy and the revised revital- inflation trends below 1 percent, third quarter challenge. ization strategy announced June 24 listed or subsequent GDP results are surprisingly 249 policy items of widely varying importance weak, or the yen strengthens significantly. Abenomics: Structural and quality for long-run structural reform in By next spring it will become clearer whether Reform and Growth 10 broad areas. These proposals are pack- achieving the 2 percent CPI increase target aged into three themes. requires a further round of monetary easing. Abenomics’ fundamental objective is to put First, and most comprehensive, is to ensure Japan on a long-run, stable, full employment Revenues for the fiscal 2014 budget cover the earning power (return on investment) growth path, which includes raising potential only 57 percent (¥54.6 trillion) of the gov- of businesses through corporate tax cuts, GDP growth from its current rate on the order ernment’s ¥95.9 trillion general account bud- better corporate governance, restructuring of 0.5–1 percent. The immediate target of 2 get; bond issue funds the rest. Japan’s fiscal and promotion of innovation, and increasing percent annual GDP growth between 2013 deficit in 2013 was 8.4 percent of GDP, and the return on public pension and other gov- and 2022 is extremely optimistic. With the it will not be much lower this year. With the ernment funds. Second is to expand human labor force decreasing by about 0.5 percent a February 2014 ¥5.5 trillion supplementary resources by increasing women’s participation year, output per worker will have to increase at stimulus package, government spending this in the labor force, changing company work a very ambitious 2.5 percent. year will be about ¥101 trillion. The Ministry styles, and increasing the limited number of of Finance (MOF) July request for the fiscal The growth strategy is straightforward and foreign workers modestly. Third is to reform 2015 budget is ¥101.7 trillion. standard: to energize and stimulate innovation and restructure major industries, notably agri- and technological change, mobilize labor and culture and health care, and help small and The immediate fiscal issue is how quickly capital effectively, and maintain strong aggre- medium enterprises and local and regional and how well the economy absorbs the April gate demand. Ultimately, growth depends on economies. 1 consumption tax increase from 5 to 8 per- the private sector—businesses, individuals, cent. This will shape Abe’s decisions about With a shrinking labor force, innovation and and households. implementing a 2 percentage point increase productivity growth are essential. The gov- in October 2015 and the expansionary or con- A general concern, which I share, is the degree ernment seeks measures to improve the weak tractionary nature of the fiscal 2015 budget. to which reforms will be implemented. Abe is institutional linkages between academic sci- Gross government debt at the end of fiscal trying hard to energize everyone. He is estab- entific research and businesses, but it is not 2014 will be about 230 percent of GDP; net lishing many committees to develop bold pol- clear that government funding of basic R&D debt, 143 percent. These will continue to rise. icy proposals. And, he has made strong public will increase substantially. The government is commitments to drill through the obstacles, establishing a council to plan the “robotics rev- While ensuring that private demand is suffi- push through deregulation, and enact and olution,” but basically companies will decide cient for growth, the government’s goal is to implement the reforms. But each proposed the costs and benefits of replacing people by achieve a budget primary balance (net of inter- reform has its critics, which has led to often robots—that is, substituting ample capital for est paid) by 2020 and then to reduce the debt heated debate in the media and in the Diet. relatively expensive labor. ratios. This will be difficult. It requires both Most government incentives are tax based; increases in the consumption tax, eventually For advanced countries, every 1 percentage with the budget deficit overhang, they will to more than 20 percent, and some modest point increase in R&D expenditures as a share be deemed “loopholes” and be difficult to reduction of retirement benefits. Both are of GDP can be associated with about a 0.4 legislate. major political challenges. percent increase in labor productivity (GDP/ Some reforms have already been initiated; worker). If this indeed is a causal relationship, The yield on 10-year government bonds (JGBs) others are to start by the end of this year or in order to increase labor productivity growth remains below 0.75 percent and touched 0.5 next year. The initiatives will take years to to 2.5 percent, Japan must increase the share percent in late August. With the CPI increase have a discernible effect on the economy, so it of R&D in GDP from 3.3 percent now to about likely to be at least 1 percent, the negative is easy to denigrate Abe’s efforts and difficult 6.5 percent. Almost all of this will have to be real yield will continue. In the longer run that is to show anytime soon that they are having done by the private sector. Current govern- unsustainable. Yields will rise, and prices will good results. ment R&D spending is only about 0.5 percent decline. How to manage this adjustment so

CJEB Annual Report 2013–2014 | 11 of total government spending. taken place; since Abe entered office, the government plans to increase trainee and number of women working has increased by intern programs from three to five years, and Japan has one of the best educated, most 820,000. Japan’s female labor force partici- to increase somewhat their annual flow from skilled, and highly dedicated labor forces pation rate of 62.4 percent is about the OECD the 85,872 who participated in 2012, but I in the world, but its numbers are declining. average. However, Japanese women age 30 do not expect it to total more than 200,000. Japanese unemployment rates have been through 44 participate at a significantly lower The government also has to improve oversight lower than those in the West, even in reces- rate than American women. of these programs significantly; 79 percent sions. The current rate is close to the optimal of the companies were in violation of the full employment rate of 3.3 to 3.5 percent. Abenomics aims to increase the percentage of Labor Standards Law ensuring trainees’ rights Demand for workers is strong. The overall married women in the labor force by providing in 2012, with some instances of egregious ratio of job offers to applicants has been more nursery and child care facilities, shifting exploitation. Almost all trainees will return about 1.1, the highest since 1992, but it is to tax neutrality for second wage earners, home after their contracts end. only about 0.7 for regular workers. For non- and various other measures. The goals are to regular workers, the ratio is 1.8. Nonregular increase the percentage of women returning Abe’s extremely ambitious, very long-run (contract, part-time, and day labor) workers to work after their first child from 38 percent demographic goal is to stabilize Japan’s pop- receive lower wages, fewer fringe benefits, in 2010 to 73 percent in 2020, and rais- ulation at 100 million by 2100 without sub- and lack long-term job security. ing female labor force participation rates for stantial immigration. This requires profound those aged 25–44 from 68 percent to 73 per- changes in government family benefit pro- The labor markets have significant imperfec- cent. However, success would only modestly grams, family values and objectives, and a tions, and labor is not allocated efficiently. reduce the demographic decline in the overall very supportive socioeconomic environment. Almost two-thirds of Japanese employees size of the labor force. Family benefit programs in France, Finland, have regular full-time, secure jobs, but some and Sweden have increased fertility rates 36 percent do not, and that ratio has been By policy, not many foreigners work in Japan, somewhat, though not to a break-even level. A rising over the years. However, according to and that is not likely to change significantly. major fertility rate increase in Japan will be a Abe’s recent statement, 1 million workers Immigration is restrictive. The number of per- major challenge. moved from irregular to regular employment manent foreign residents in 2012 was 2.0 in the last three years. million. Excluding Korean permanent resi- Assuming Japanese do choose to have more dents (most born in Japan), some 714,000 children, timing is key. A Japan Center for The shortage of construction workers is the foreigners are working in Japan legally, mak- Economic Research projection is that, if the most serious mismatch; the ratio of vacan- ing up 1.1 percent of the labor force. Some fertility rate rises gradually to 2.07 by 2050, cies to workers was 3.4 in June 2014. The 320,000 are permanent residents descended then the population would stabilize at 90 mil- markets for nonregular, low-wage workers in from Japanese emigrants, mostly from Latin lion by 2100. Other assumptions about timing convenience stores and fast food restaurants America. About 150,000 are relatively stabilize the population at 80 million, close to are also tight, which desirably puts upward unskilled workers in training programs, mostly the population in 1950. pressure on wages. from China. Another 200,000 are foreign Abenomics has made labor markets one of its students working part time. There are up Key Sectors three priority areas for reform. This includes to 50,000 illegal workers, mainly students In June, the government regulatory reform increasing female participation, encouraging or guest workers who have overstayed their panel proposed 230 deregulation measures. corporate working styles to become more visas. When media report on immigrants, they They focused particularly on three key sec- flexible, and a slight increase in the small usually are referring to worker trainees and tors: electric power, health care, and agricul- number of foreign workers. Other than “wom- related programs, not permanent immigrants. ture. enomics,” labor market reform so far has been Japan tries to attract highly skilled foreign modest, and I am not persuaded that Abe will The 10 regional electric power companies will managers, engineers, and other professionals, push through major reforms. unbundle electricity production, transmission, as do other countries. The Japanese language and distribution beginning in 2016. Already, Increasing the participation of women in the is a major barrier. To meet the demand for new entrants are creating more competitive labor force is important. Much has already low wage, relatively unskilled workers, the markets. While reducing feed-in tariff rates

12 | CJEB Annual Report 2013–2014 somewhat, the government continues to sub- government has already announced that in costs are covered by national, corporate, or sidize renewable sources heavily, especially 2018 the traditional rice production quota other insurance. Health care costs are about solar and wind, but they will only replace coal system will be ended, making production more 8.5 percent of GDP, less than in most other and gas modestly. With all nuclear power responsive to market forces. The Abe gov- advanced countries. But no system is perfect. plants closed, 90 percent of electricity is gen- ernment’s deregulatory agricultural policies Japanese health care experts have proposed erated thermally. High-cost LNG imports have promote land consolidation, vegetable and many specific improvements in the organiza- soared and will continue as a major energy fruit production, and a wider range of services tion of medical services, the insurance sys- source. to be provided by more decentralized JA and tems, and other measures. other local cooperatives. The Cabinet’s April 2014 Basic Energy Plan Most health care costs are paid through pledges to “lower dependency on nuclear Japan has 1.6 million commercial farm house- the public sector. Some Japanese also pay power as much as possible” while support- holds, with 4.5 million members. The average for increased or new services not provided ing early reopening of existing nuclear plants farm size is 4.8 acres. The average age of through the national system. Public health once the government’s now-stringent safety farmers is 65. The 886,000 households with spending in 2010 was funded 48 percent by standards are met. The Fukushima incident farmland less than 12.3 acres earn more from premium contributors, 13 percent by patient has made most Japanese anxious about side jobs than from farming. Only farms larger copayments, and 39 percent by government nuclear power plant safety, more so than air than 35 acres earn farm incomes of more than transfers to the programs. pollution deaths or other health risks, without ¥11 million ($110,000). Japanese farmers Japanese have the longest life expectancy in assessment of the economic costs. are technologically sophisticated, have ample the world, 82.8 years. Health care spending equipment, and productivity per unit of land The Nuclear Regulation Authority in early rises sharply for the elderly. For a Japanese is high, but not per farmer. A significant orga- September certified the reopening of two 85 or older, costs are seven times as much as nizational transformation is the increasing reactors in Kyushu, but local government for someone aged 40–44. Long-term health number of corporations, with half their shares consent has to be obtained. Media reports care expenditures are more dramatic; those owned by local farmers who contribute their indicate that Abe will make the final decision 85 or older cost 30 times as much as those land and the other half by outside investors. by year end, presumably positive since he aged 65–69, due to custodial care. This provides mechanisms to land consolida- has strongly promoted reopening safe plants. tion. Health care spending increased from 4.4 per- Companies have applied to reopen 20 plants; cent of GDP in 1990 to 9.8 percent in 2011. that will take several more years. Reopening Transformation of agriculture will continue to Two-thirds of this was due to the increased most of the other 28 operable nuclear plants be a gradual, long-run process. The govern- number of those 65 or over, the remainder is not viable for cost or locational reasons. ment will nudge this along without fundamen- to costs of technological advances, the high tally undermining the well-being of existing Even though in macroeconomic terms agri- income elasticity of health care demand, and farm families, for good political and social culture is no longer a major sector, producing wage rates. Increased government spend- reasons. The issue ultimately will be resolved less than 1.2 percent of GDP and utilizing 3.8 ing paid for 4.75 percentage points of the through a combination of demographics and percent of the labor force, agriculture reform increase, contributing significantly to the gov- market forces. For decades, most children is always a major political issue. Agriculture ernment budget deficit. of farmers have migrated to urban areas. In encapsulates in extreme form Japan’s major another decade or two, 80 percent of current Conservative assumptions generate projec- socioeconomic issues: demography (many old Japanese farmers will have retired. Japan tions that aging costs will increase health farmers, few young farmers); inefficient pro- will then have some 250,000 younger core care’s share of GDP in 2030 to 12.8 percent duction; a powerful, monopolistic producers’ farmers producing high-valued perishables for of GDP. If costs rise 1 percent more rapidly association in the nationwide Central Union of domestic markets. than GDP/capita growth, then health care’s Agricultural Cooperatives (JA); and decades of share of GDP in 2030 will be 15.6 per- rural depopulation. The health care system is in good shape and cent. Most presumably will be paid for by the coverage is universal. Most services are pro- Abenomics aims to double the income of government. Government transfers are pro- vided privately through hospitals, doctor clin- farm, and farming communities, but without jected to increase from 3.6 percent of GDP in ics, long-term care, and other facilities; most specifying how or when this will occur. The 2010 to 7.8 percent in 2030. Funding this is

CJEB Annual Report 2013–2014 | 13 roughly equivalent to raising the consumption deregulation, regulatory reform, and other some 24,000 large firms (with paid-in capital tax by 7 percentage points. business-friendly measures. The June 2014 of ¥100 million, about $1 million) pay two- basic policy statement includes corporate tax thirds of corporate income taxes. Small and The Abenomics program proposes to improve reduction, corporate governance measures, medium enterprises pay out most profits to the quality of health care services and incen- participation of women in the labor force, and their owner-managers as wages and expense tives for preventive health care measures but other measures to increase innovation and accounts. Given the difficulty in identifying does not provide a comprehensive analysis total factor productivity. personal income and taxing it, the consump- and strategy. Nor does it address how to pay tion tax is considered more administratively for the increasing costs. Business investment is a key driver of growth. feasible and fairer, even though it is regres- The most recent data indicate that, after For good political as well as economic rea- sive. a long hiatus, businesses are beginning to sons, Abenomics stresses the importance of invest. Large firms plan to increase capital The main focus of Abenomics is on the 3,414 developing local regions, though what is to spending by 7.4 percent in fiscal 2014, above companies listed on the stock exchanges, be done is not clear. The government has economic expert forecasts. Since 2002 com- primarily the 1,814 major companies listed on designated six regions as National Strategic panies have saved considerably more than the first section of the Tokyo Stock Exchange Special Zones to test bold structural reform they invested and have replaced households (TSE), the predominant market by market proposals. Two are in the primary metropolitan as the major source of net saving. In 45 of the value and trading volume. These companies areas. The potentially most important are to 48 quarters from 2002 to 2013, companies are the locus of a mixture of government make the Tokyo area an international business paid down debt and, over time, accumulated guidance, TSE rules, and market and public hub and to make the Kansai (Osaka-Kobe) area now-large cash reserves. In large part this has pressures. Foreign institutions now hold about a hub for medical and health care innovation. been a survival-mode response to the severe 31 percent of market capitalization, and some A third is to make Fukuoka City (on Kyushu) balance sheet shocks of the bursting of the foreign hedge funds are active participants. a center for start-ups, in effect encouraging real estate and stock market bubbles, then The Abe administration places considerable younger people to move to this mid-size urban the credit crunches in 1997–99 and 2002, emphasis on stock market prices as an indi- area rather than to already-crowded Tokyo and most recently, the 2008–9 recession. cator of its success. However, prices are influ- or Kansai. I am not persuaded that this zone In January 2014, the government provided enced by foreign as well as domestic condi- approach will become important. The concept new tax incentives in the form of accelerated tions, and by short-term speculative flows. of testing new policies in these zones is good, depreciation allowances and investment tax but I will wait to see whether effective reform Most Japanese listed companies are con- credits for new investments. policies will actually be strongly implemented. trolled by entrenched management that rep- The government plans to legislate corporate licates itself over time through entry-level hir- In the long run, Japan’s potential growth income tax cuts next spring. Passage will have ing and cohort-based evaluation and promo- remains good, since it still has to catch up with a useful symbolic effect, demonstrating that tion. Management cozily takes care of other the U.S. in per capita terms. Japan has done Abe is pursuing reform. The plan is to reduce stakeholders, particularly regular employees. less well than the U.S. since the mid-1990s. the present 35 percent rate to slightly less Firms generally pay stable (though not large) In 1995, Japan’s GDP per capita was 80 than 30 percent in annual increments starting dividends to shareholders, mainly Japanese percent of the U.S.; in 2012, just 69 percent. in fiscal 2015. Eventually, the rate is to fall pension funds, trust banks, life insurance Labor productivity in Japanese manufacturing to 25 percent. MOF, of course, wants to fully companies, and other institutional investors. is high. Japan’s challenge is to increase labor offset the revenue loss, so the government productivity dramatically in services. Firms within the same industry vary widely has rather vaguely stated that enough current in performance. However, so long as man- tax incentives (loopholes) will be ended to agement performs reasonably well, it has Corporate Opportunities make the cuts revenue neutral. This will be a great autonomy. There have been egregious and Challenges major issue. cases of companies holding huge amounts of Revitalization and growth depend on mobiliz- As it is, only 28 percent of Japanese compa- cash and not being very profitable, seemingly ing the private sector. The government is pro- nies pay corporate income taxes, less than in ideal targets for restructuring and increase moting a better business environment through most countries. Of Japan’s 2.45 million firms, dividends. Foreign hedge funds sensed an

14 | CJEB Annual Report 2013–2014 opportunity. Between 2001 and 2008 there More than 85 percent of the boards of direc- employment before management-track were some 47 hostile interventions. However, tors of listed companies are internal, selected cohorts are promoted to section-chief level domestic institutional shareholders, and the from top managers. The Abe administration (kachö). This conflicts with family life. courts, generally backed incumbent manage- has amended corporate law to require com- The objective is for women to pursue full- ments, even at great cost to domestic share- panies, beginning in 2015, to explain why time management-track careers and to marry holders. they have no outside directors if they choose and have several children, but it is not made not to. As of June 2014, 74 percent of the Japanese companies have low returns on clear how these competing objectives will be TSE first section companies had at least one investment and on equity, only about half achieved. Will families be prepared to have outside director, up from 62 percent in August that of Western firms. To succeed, Abenomics their children in day care or with grandpar- 2013. While there are few cases of outside needs firms to invest in good projects rather ents from a few months old in order for the directors constituting a majority, 622 compa- than holding so much cash. Friendly mergers wife to pursue her career? Will the supply of nies (34 percent) have two or more. and acquisitions are increasing as firms con- nurseries and other child-care centers be ade- solidate to remain competitive; hostile take- Increasing the role of women in the economy quate and at a reasonable cost? Are Japanese overs remain quite rare. However, with an has two major goals: to increase the total companies prepared to incorporate a sup- aging client base, Japanese pension funds, labor force and to increase the number of portive female dimension to their corporate life insurance companies, and others are now women in managerial and other decision-mak- work culture? Will other indicators of com- more willing to press Japanese companies to ing positions. In appointing 5 women to the mitment, such as good performance, replace be more profitable and pay higher dividends. 18 positions in his September 3 Cabinet long hours? Having a significant proportion reshuffle, Abe stated he wanted women to of women in senior management positions The Abe administration has made corporate provide a fresh set of perspectives. Abe’s very implies that Japanese managers of both gen- governance a top priority. The basic objec- ambitious goal is for large corporations, as ders will, as in the West, leave the office by tives are to increase transparency, to assure well as the public sector, to promote women 6:00 or 7:00 p.m. and even return home for compliance with regulations, and to enhance to 30 percent of management positions by dinner and time with their families. It is my corporate performance. The TSE, together 2030. In 2011, women held 10.6 percent of sense that many young men are not eager with the Financial Service Agency (FSA), is management positions (kachö or higher) and to replicate the traditional model. They are drafting a corporate governance code that will were 1 percent of board members. more willing to work with women as equals, require several outside directors and provide even as bosses, and enjoy the pleasures of formal protection for whistle-blowers, among The United States over the past 50 years has fatherhood. other provisions. The code will be presented achieved a major increase in the gender and to shareholders at company annual meetings ethnic diversity of highly skilled occupations. International Context in 2015. Other government proposals are Increasing the talent pool by including women to reduce the cozy, mutual cross-sharehold- should increase productivity and growth The world economy continues to recover from ing arrangements that firms have with each rates, as qualified women are promoted to the 2008–9 Great Recession, but at a modest other, and to increase the power of indepen- senior management and other skilled posi- pace. The U.S. and Japanese economies are dent shareholders. The FSA has introduced tions previously allotted to less-qualified men. doing moderately well. Eurozone economic guidelines to provide more information so that Many companies today are actively hiring difficulties persist, exacerbated by Germany’s shareholders can better monitor companies. female college graduates for their manage- relatively good performance in contrast to the ment track, but there are very few females southern European economies; austerity has With government backing, in January 2014 in the career-track cohorts hired a decade or been costly, and deflation and renewed reces- the TSE launched the JPX-Nikkei 400 Index, more ago. sion are real dangers. Asia continues to be the selecting outstanding companies based world’s most dynamic region, led particularly mainly on their superior operating profits Japanese managerial corporate culture is by developing China, India, and Indonesia, and and ROE (return on equity). Inclusion sig- based on spending long hours at work, not developed Japan and Korea. Economic inter- nals a company’s quality, which provides an necessarily very effectively, leaving the office actions in East Asia are extensive, deep, and incentive to improve profitability. The index is late at night. This has been taken as a signal mutually beneficial. However, it is not a har- reconstituted every six months. of commitment to the company and to one’s monious political or security region; political career. It takes about 13 years of continuous

CJEB Annual Report 2013–2014 | 15 trust among countries is low, and nationalist the U.S. and Japan must agree on TPP within democratic, peace-loving, comfortable, safe sentiments are often strongly voiced. Abe’s the next six months, or it will go into limbo. country, based on a strong, homogeneous, pronouncements and policies have exacer- cohesive society and its own, distinctive lan- The good news is that the yen is not likely to bated political tensions. guage. As one of the world’s five largest econ- strengthen significantly. It would be even bet- omies, Japan will continue to a major player. It Substantively and symbolically, China and ter if the yen continues to weaken modestly in will continue to be transformed by economic the 12-nation Trans-Pacific Partnership (TPP) the coming months. success and the demographics of population free trade agreement are especially import- Tourism has become an important industry. and labor force decreases. Urbanization will ant for Japan. China became Japan’s largest Some 4.4 million tourists visited Japan in continue; rural areas will continue to lose trading partner two years ago; in 2013, 18.1 2005, 8.0 million in 2013, and probably population despite government efforts. Japan percent of Japan’s exports went to China, more than 10 million this year. Japan has sig- is a forerunner in many of these trends, but it and 21.7 percent of its imports came from nificantly eased visa requirements and made is not unique. China. Japanese direct investment in China it easy for Chinese budget airlines to fly to a increased rapidly until 2011, then leveled Abe and Abenomics have benefited from and number of Japanese cities. The weaker yen off, declined slightly in 2013, and dropped contributed to the more positive mind-set in has contributed. Most tourists come from precipitously by 49 percent in the first half Japan. Japan may not “be back,” but it is basi- Taiwan (26.0 percent in 2013), Korea (24.8 of 2014. This suggests China’s labor costs cally on its way. If not immediately, Japan will percent), and China (8.9 percent). A positive and geographical diversification for Japanese move onto a path of good economic growth, indicator is that in the first seven months of are less important than concerns about the price stability, and better use of labor and 2014 some 1,290,300 tourists from China political relationship. Nonetheless, China’s other resources. At worst, Japan will continue visited Japan, a 91 percent increase from the ongoing, relatively rapid development means to muddle through. More likely, given Japan’s comparable period in 2013. that China economically will become more and fundamental strengths as an economy and as more important to Japan. The Abe Cabinet significantly revised the gov- a society, as in the past, Japan will prevail. ernment’s interpretation of the Constitution Japan’s participation in the TPP depends on October 19, 2014 by deciding on July 1 to exercise the right to the success of the intense U.S.-Japanese collective self-defense. This has generated bilateral negotiations still under way. This is strong critical reactions, especially in China the most contentious issue in the bilateral and Korea. It is seen as the first step onto a relationship; moreover, it sets the context for path to a much more nationalistic and milita- broader Japanese and U.S. trade policy. ristic Japan. Collective self-defense is a major Japan’s big TPP challenge is to end its high political issue in Japan, and Abe has decided protection of agriculture. That makes TPP an to delay presenting enabling legislation to the important policy instrument in agricultural Diet until next year. reform. But it is not clear that Abe and the LDP are prepared to eliminate or significantly Conclusion reduce tariffs on enough key items to satisfy Japan will be doing quite well if, in the coming the U.S. There are 566 tariff line items in the decade, it achieves GDP growth of 1 percent five “sacred” agricultural categories of rice and GDP per capita growth of about 1.5 (778 percent tariff), dairy products such as percent. However, that requires labor produc- butter (360 percent), sugar (328 percent), tivity to increase at slightly more than 1.5 wheat (252 percent), and pork and beef (38.5 percent, which in historical and comparative percent). Even in the best case scenario, agri- terms would be impressive. cultural trade will only gradually be liberalized over at least 10 years. It is always important to keep Japan in perspective. It is a highly successful, high- Whether Congress will pass a TPP agreement tech, high-income, globally competitive, also is a major hurdle. Experts suggest that

16 | CJEB Annual Report 2013–2014 Current Research Highlights

From left to right: David E. Weinstein , Gerald L. Curtis, Merit E. Janow, Curtis J. Milhaupt

CJEB places a high priority on promoting problems in individual large financial institu- understanding of how policy and economic research related to the Japanese economy tions are for understanding aggregate loan shocks are transmitted to economies. He also and its businesses, management systems, volatility in general and what impact bank has been using these data to understand the and financial markets. Typically, faculty mem- loan supply has on the investment of firms. sources of firm success. bers associated with the Center individually He also is working on a project with the Bank He is, in addition, pursuing a project with obtain funding through competitive outside of International Settlements on the global the Rakuten Institute of Technology focusing grants, and CJEB provides additional financial demand and supply of bank assets. on the gains to Japanese consumers from and administrative support. His work on Japanese inflation involves exam- Internet purchases. David E. Weinstein leads the Center’s ining how problems in the measurement of Professor Weinstein’s recent publications research activities and has several individ- inflation should affect monetary policy. In par- include “Goods Prices and Availability in ual projects under way, supported in part by ticular, Professor Weinstein examines whether Cities,” with Jessie Handbury, Review of the National Science Foundation (NSF), the central banks should care less about infla- Economics and Statistics (forthcoming); and Institute for New Economic Thinking (INET), tion movements when inflation rates become “Exports and Financial Shocks,” with Mary and a Google Research Grant. Professor lower. This research has implications for Amiti, The Quarterly Journal of Economics Weinstein’s research and teaching focus on understanding monetary policy in Japan and (November 2011). He continues to publish international economics, macroeconomics, much of the developed world. in major journals, including The American corporate finance, the Japanese economy, Professor Weinstein has continued his work Economic Review. and industrial policy. In addition to being on “Prices in Space and Time,” a research proj- CJEB’s associate director for research, Professor Weinstein’s research is often cited ect using barcode data from the ACNielsen Professor Weinstein is the chair of the and discussed in the media, and he is a fre- HomeScan (for purchases in the United Columbia University Economics Department quent commentator on Japan. States), Nikkei-POS, and ACNielsen Scantrak and codirector of the NBER Japan Project, (for retail sales in Japan and several other coun- cosponsored by CJEB. Gerald L. Curtis was engaged this past tries), and Google’s price and click-through year in a major research project on the evo- Professor Weinstein’s research utilizes information (for all retail products and real lution of and future prospects for Japan’s extremely detailed databases on various estate reported on the Google Product search political system and foreign policy. In this aspects of the Japanese economy. In 2013– and Google Maps for several countries). This regard, he traveled widely in Asia, to Japan, 2014, Professor Weinstein continued his project aims to measure inflation at a daily China, Korea, Singapore, Indonesia, and research on systemic financial risk in Japan. frequency and explore how daily price and Vietnam. He was the featured speaker at He has a major project under way that aims to consumption data respond to macroeconomic the Foreign Correspondents Club of Japan, understand how banking crises affect aggre- shocks. Professor Weinstein expects that the the International House of Japan, the gate investment. In particular, this research construction of daily price and consumption Japan Forum on International Relations, the will answer the question of how important indexes for major economies will alter our Tokyo Foundation, the American Chamber

CJEB Annual Report 2013–2014 | 17 of Commerce in Japan, Meiji and Tokyo and Corporate Governance in Japan” in the Universities, and Academy Hills. He was the Columbia Business Law Review and “Beyond featured speaker with Prime Minister Abe Ownership: State Capitalism and the Chinese at a Japan symposium sponsored by the Firm” in the Georgetown Law Journal. Economist magazine. In the United States, Alicia Ogawa continues her private consulting he spoke at the Council on Foreign Relations, work on Japan’s politics and economy, her the National Committee on American teaching at SIPA, and her work at the Maureen Foreign Policy, the Japan-America Society of and Mike Mansfield Foundation. Professor Washington DC, the Jiji Top Seminar in New Ogawa’s public speaking has continued to be York, Stanford University, and elsewhere. He in high demand. This year, she conducted a traveled to Britain, where he was the featured seminar at SIPA focusing on macroeconomic speaker at a Ditchley Foundation conference impacts of new bank regulations such as the on Japan. In addition to his academic writ- Dodd-Frank Act and Basel III. Furthermore, ings, he regularly publishes columns in both she continues to examine Japanese govern- Japanese and English language newspapers, ment bond and real estate markets closely. is a frequent guest commentator on Sunday Professor Ogawa is also a consultant on morning news programs on Japanese tele- Japanese financial markets to two of the larg- vision, and is widely quoted by international est U.S.-based macro funds. She continues media outlets on issues relating to Japanese to work closely with CJEB Visiting Fellows by politics and society and United States for- assisting them with their research and semi- eign policy. Professor Curtis’s article “Japan’s nar presentations. Cautious Hawks” in the March/April 2013 issue of Foreign Affairs was part of a larger Hugh Patrick continues his work on Japan’s research project on U.S.-Japan relations and current economic performance and institu- the international relations of East Asia. tional changes. His most recent paper is his annual essay on the current Japanese econ- Merit E. Janow, recently appointed dean of omy, included in this annual report, starting on Columbia University’s School of International p. 9. Professor Patrick gave policy-oriented and Public Affairs (SIPA), researches finan- talks based on his research at conferences cial regulatory reform as well as international and private meetings. He is an active partic- trade and investment. Over the past year, ipant in a range of conferences about Japan she has spoken to international corporate, and Asia. His fall conference participation academic, and policy audiences on topics took him to Beijing, Tokyo, and Hong Kong, including financial regulatory reform in the and in the spring he attended conferences in United States, developments in international Hong Kong, Tokyo, and Seoul. He addressed trade and investment, comparing Chinese Abenomics both in his opening comments and Japanese industrial policies, and corpo- at the Stanford Project on Japanese rate governance issues. She is continuing a Entrepreneurship Conference in June and at research project on China that focuses on a lecture at Seoul National University in May. sources of tension and opportunity in China’s He introduced Governor Kuroda of the Bank of external economic relations. Japan at the CJEB Conference in Tokyo earlier Curtis J. Milhaupt continues his research in May. He was featured widely in the media, on comparative corporate governance; the including in such outlets as Nikkei, Jiji News legal systems of East Asia, particularly Bulletin, and NHK’s NHK Special. Japan; and law and economics. Professor Milhaupt published “Executive Compensation

18 | CJEB Annual Report 2013–2014 Faculty Engagement

CJEB endeavors to support Columbia Business School (CBS) faculty members not formally associated with the Center by serving as an entree to Japan’s business, professional, academic, and cultural worlds. The Center funds Japan-related research and seeks ways that CBS professors can incorporate study of Japan’s economy and business systems into their research and teaching. The Center uses its extensive network of Japanese corporate contacts to arrange for speakers from the pri- vate sector to talk in CBS classes. CJEB also has access to various Japan-related data- bases that faculty use for research and, where appropriate, can fund and arrange faculty research trips to Japan.

CJEB often cosponsors programs with other centers at CBS. In addition, CBS fac- ulty members often participate as speakers or panelists for various CJEB public pro- grams. Christopher J. Mayer, Paul Milstein Professor of Real Estate, served as a panel- From left to right: Richard Folsom, Bruce G. Greenwald ist at CJEB’s October 2, 2013, conference, “State Intervention and Private Enterprise: the spring 2014 Chazen International Study Japan, the U.S., and China.” Raymond Tour to Japan. This year, Yashodhan Kanoria, Fisman, Lambert Family Professor of Social assistant professor at CBS, led the study tour. Enterprise and codirector of the Social Enterprise Program at CBS, was the featured CJEB’s support for faculty research is not lim- speaker at the lunchtime seminar, “How Sino- ited to CBS faculty. The Center also supports Japanese Turbulence Affects Trade between the research of Kay Shimizu, assistant profes- the Two Countries,” on April 15, 2014. The sor of political science at Columbia University, 15th Annual Mitsui USA Symposium on who has been conducting studies on Japan’s April 23, 2014, “How to Buy Japan: Private regional economies and central-local rela- Equity in a Global Economy,” featured Bruce tions. Her current book manuscript, titled C. Greenwald, Robert Heilbrunn Professor of “Politics of Fiscal Austerity: Moving Private Finance and Asset Management and director Money as Public Funds,” addresses Japan’s of the Heilbrunn Center for Graham and Dodd political struggles to adjust to a postindus- Investing at CBS, as a commentator discuss- trial economy. She has also spent this past ing private equity in the Japanese market as semester in Japan researching reforms in well as Abenomics. Japan’s agricultural sector. Through the lens of agriculture, this new project addresses As in years past, CJEB worked with the many aspects of Japan’s society, economy, Jerome A. Chazen Institute of International and politics, including demographic shift, rural Business and the MBA student-run Japan depopulation, trade liberalization, and interest Business Association (JBA) of CBS to sup- group politics. port the travel of a CBS faculty leader for

CJEB Annual Report 2013–2014 | 19 Research Paper Series

CJEB fosters dissemination of research WP 322 WP 323 on Japan’s economy and business within How Making It Easier to Succeed Saving–Investment Balance and Fiscal Columbia and in the broader academic, busi- Reduces Success: IPO Reform and Sustainability of Japan: A View from the ness, professional, and public policy communi- New Firm Performance JGB Market ties. While much of the research produced by scholars affiliated with the Center ultimately Robert Eberhart, Researcher, Graduate Tokuo Iwaisako, Professor, Institute of appears in scholarly books and professional School of Business, Stanford University Economic Research, Hitotsubashi University journals, early drafts of the work and research results can be found in CJEB’s Working Paper Kathleen Eisenhardt, Stanford W. July 2013 (WP) Series. We also accept interesting, Ascherman MD Professor, Department of topical papers not slated for eventual publi- Management Science and Engineering, This paper provides an overview of the sustain- cation in our Occasional Paper (OP) Series. Stanford University ability of Japan’s government debt, emphasiz- ing the viewpoint of market participants in the Papers in both series are available for free Charles Eesley, Assistant Professor, Japanese government bonds (JGB) market. The download through our website at www.gsb. Department of Management Science and Japanese government will be able to finance columbia.edu/cjeb/research, which links to Engineering, Stanford University the Columbia University Libraries’ Academic its debt as long as current surpluses continue, Commons website. July 2013 meaning there is sufficient domestic demand for JGB. Looking at domestic investors’ port- 2013–2014 This paper examines how institutional folio choices, both life insurance companies changes that lower the barriers to suc- and pension funds are increasing their holdings Working Papers cessful exit influence the rate of IPOs, the of long-term government bonds to match the initial capitalization, and the performance WP 321 maturities of their assets and their payments of subsequent ventures. Such IPO market to households. Japanese banks, on the other Real Exchange Rates in a Model of Struc- reforms are widespread, but their effective- hand, are increasing their holdings of short- tural Change: Applications to the Real ness is unclear. We take advantage of a term government debt, almost proportionally to Yen-Dollar and Chinese RMB-Dollar Ex- quasi-natural experiment in which the IPO the increase in their deposits. However, there is change Rates listing requirements in Japan were dramat- substantial heterogeneity in portfolio choice. ically reduced. Using a unique database of Robert Dekle, Professor of Economics, Three mega–bank groups (Mitsubishi–Tokyo– more than 19,000 new firms incorporated Dornsife College of Letters, Arts and UFJ, Mizuho, Sumitomo–Mitsui) and large after 1982, we find that IPO market reform Sciences, University of Southern California regional banks have decreased their portfolio is a powerful institutional lever that increases weights of JGB recently. Smaller banks spe- July 2013 the rate of IPOs. But it is also a narrow cializing in small-firm lending and agricultural instrument that influences only a few indus- lending as well as Japan Post Bank (Yu-cho) This paper tackles the important issue of what tries and triggers poor average performance have increased the proportion of government are appropriate trends in the real yen-dollar in those industries. Overall, we find that debt in their portfolios. Hence, potential losses and RMB-dollar over time. Over the long run, IPO market reform is a complex institutional in their portfolios, once the JGB yield starts to the real yen was appreciating against the change. We conclude with contributions at increase, are much higher with the latter group U.S. dollar, while the real RMB-dollar rate was the nexus institutional theory and entrepre- of financial institutions. depreciating (until 1999). We build a macro- neurship that indicate where and for whom economic-trade model of Japan-U.S. trade institutional change will be effective. on the one hand, and China-U.S. trade on the other. Our model is essentially a general equi- librium extension of the Balassa-Samuelson effect. We show that these long-run trends in the real yen-dollar and RMB-dollar rates in the data can be justified by our model.

20 | CJEB Annual Report 2013–2014 WP 324 in other departments to resist changing stu- declined after the trade, in particular for firms dent quotas (teiin) in favor of the new disci- that divested a core-related subsidiary. We Academic Entrepreneurship: A Comparison pline. Taken together, these factors inhibited conclude that subsidiary trades in Japan in of U.S. and Japanese Promotion of Informa- the development of computer science as a this period contributed importantly to strate- tion Technology and Computer Science distinctive discipline and disrupted efforts by gic repositioning and a more efficient use of Robert Cole, Joint Researcher, ITEC, Doshisha faculty entrepreneurs seeking to promote the corporate assets. University; Emeritus Professor, Haas School of new discipline. By contrast, I will show how Business, University of California at Berkeley institutional practices in the U.S. acted to pro- WP 326 mote academic entrepreneurship, enhancing July 2013 the growth of the new discipline. Good Jobs, Bad Jobs, and the Great Reces- Manufacturing hardware is increasingly a sion: Lessons from Japan’s Lost Decade commodity product with low margins. The WP 325 Ryo Kambayashi, Associate Professor, reason for the diminished value of hardware is Institute of Economic Research, Hitotsubashi that more and more of the value in high-tech The Market for Corporate Subsidiaries in University products is contributed by software meeting Japan: An Empirical Study of Trades among user needs, through enabling new function- Listed Firms Takao Kato, W. S. Schupf Professor of alities and services. Those firms better able Economics and Far Eastern Studies, Colgate Ulrike Schaede, Professor of Japanese to create and use software advances improve University; Research Fellow, Institute for the Business, School of International Relations their competitive outcomes. Japanese high- Study of Labor (IZA), Bonn, Germany and Pacific Studies, University of California tech firms have been slow to recognize and at San Diego July 2013 act on the growing importance of software and have suffered competitively. The rea- Tatsuo Ushijima, Professor, Graduate School This paper provides novel evidence on the sons are many. It is widely recognized that of International Management, Aoyama long-term effect of the Great Recession on human capital is a critical component of soft- Gakuin University the quality of jobs, in particular whether the ware innovation and thus would be central to Great Recession resulted in the replace- July 2013 any explanation of Japanese firms’ weakness ment of “good jobs” (characterized by high in software. For this reason, I focus on the We investigate trades of wholly or partially wage/benefit, job security, and opportunity role of university engineering education in IT, owned subsidiaries between firms listed on for training and development) with “bad jobs” comparing the U.S. and Japan. My analysis the Tokyo Stock Exchange (TSE) for the years (characterized by the lack of such attributes). documents the leadership role played by U.S. 1996 to 2010, to explore the economic Unfortunately, there is not yet sufficiently long universities and, in particular, the academic impact in terms of strategic refocusing, stock data from the recent Great Recession that entrepreneurship demonstrated by leading market valuation, and performance effects. enable researchers to study fully its long-term computer science departments. The con- By pairing both sides to each deal, we show consequences for the labor market structure. trasts with leading Japanese universities, the differences in firm characteristics, returns, To this end, we examine Japan’s Lost Decade, University of Tokyo in particular, are striking. and subsequent performance of buying and the original Great Recession that occurred two On the Japanese side, they include a slowness selling firms. Unlike mergers between whole decades ago. First, we find no evidence for a in recognizing the importance of software and firms, most subsidiary deals straddled differ- shift of male employment toward “bad jobs” in adopting state-of-the-art curriculums; a ent industries. Most sellers were larger, more during the Lost Decade. Second, for women failure of MEXT to regulate the way in which diversified, and less profitable than buyers. we find a compositional change from self-em- universities implemented their mandate to Our event study reveals that abnormal returns ployment to nonstandard employment, which develop information technology; an egregious were positive for buyers yet insignificantly is, however, found to be a shift from “bad jobs” sabotaging of the new information technology different from zero for sellers. However, sub- to “bad jobs” rather than “good jobs” to “bad departments by university administrators; and sidiary sales in the core business earned jobs.” As such, our findings cast doubt on the a reluctance of leading firms to hire computer negative returns, the more so the larger the popular narrative of the long-term negative science graduates. Finally, centralized faculty deal. An analysis of ex-post operating results effect on job quality of the Great Recession. decision making allowed engineering faculty shows that the performance of sellers often However, for one particular group of Japanese

CJEB Annual Report 2013–2014 | 21 workers—youth—we find compelling evidence literature. Acquired firms’ production facilities into the Japanese microbrewery industry. in support of the popular narrative. All prog- were not on average any less physically pro- Our findings indicate that postentry embed- ress that young women made in enhancing ductive than the plants of the acquiring firms dedness has contrasting effects, reducing their share of standard employment during before acquisition, conditional on operating. overly nonconformist strategies among de Japan’s high growth decade in the 1980s They were much less profitable, however, due novo entrants, but enhancing nonconformity is found to be entirely undone during the to consistently higher inventory levels and among de alio entrants. These results indicate Lost Decade. The Great Recession affected lower capacity utilization—differences that how institutions can serve as enablers of the quantity of jobs, and policymakers ought reflected problems in managing the inher- innovation, rather than constraints, through to pay immediate attention to such quantity ent uncertainties of demand in the industry. their dissemination of standards, norms, and effects. However, the Great Recession may When these less profitable plants were pur- industry practices. also have more long-term structural effects on chased by more profitable establishments, the quality of jobs, and such long-term effects the acquired plants saw drops in inventories WP 329 may be heterogeneous, concentrating on a and gains in capacity utilization that raised specific group of workers such as youth. both their productivity and profitability levels, Framing from Afar: External Agents and consistent with acquiring owner/managers the Construction of the Japanese JiBiru spreading their better demand management Industry WP 327 abilities across the acquired capital. Christina Ahmadjian, Professor, Graduate Acquisitions, Productivity, and Profitability: School of Commerce and Management, Evidence from the Japanese Cotton Spin- WP 328 Hitotsubashi University; National Center of ning Industry Sciences Does Embeddedness Reduce Innovation Serguey Braguinsky, Associate Professor, and Differentiation? Evidence from the Jesper Edman, Assistant Professor, Department of Social and Decision Sciences, Japanese Microbrewery Industry International Business Strategy, Graduate Carnegie Mellon University School of International Corporate Strategy, Christina Ahmadjian, Professor, Graduate Atsushi Ohyama, Associate Professor, Hitotsubashi University; National Center of School of Commerce and Management, Graduate School of Economics and Business Sciences Hitotsubashi University; National Center of Administration, Hokkaido University Sciences September 2013 Tetsuji Okazaki, Professor, Graduate School Jesper Edman, Assistant Professor, This paper explores how “framing from afar,” of Economics, University of Tokyo International Business Strategy, Graduate in other words, the construction of catego- Chad Syverson, J. Baum Harris Professor of School of International Corporate Strategy, ries by external agents—policymakers, reg- Economics, The University of Chicago Booth Hitotsubashi University; National Center of ulators, local governments, consulting firms, School of Business; Researcher, National Sciences and other actors—influences the establish- Bureau of Economic Research ment and subsequent evolution of a new September 2013 industry. We use the case of the Japanese August 2013 While strategic management scholars and microbrewery industry to demonstrate how We explore how changes in ownership and institutional theorists regularly debate the initial external category-setters shape the managerial control affect the productivity and merits of organizational differentiation and evolution of the industry by influencing the profitability of producers. Using detailed oper- innovation vs. conformity and embeddedness, type of producers that enter and what they ational, financial, management, and owner- few studies have sought to empirically inves- produce. We show that external agents used ship data from the Japanese cotton spinning tigate how these seemingly opposing forces the preexisting term JiBiru—meaning regional industry at the turn of the last century, we impact each other. Drawing on both qualitative or local beer—to define the new industry in find a more nuanced picture than the straight- and quantitative data, we contribute to clos- terms of regional economic growth. This broad forward “higher productivity buys lower pro- ing this research gap by exploring how posten- category framing served to legitimate entry ductivity” story commonly appealed to in the try embeddedness impacted innovation and by producers from a diverse range of back- survival among de novo and de alio entrants grounds, and invited extreme experimentation

22 | CJEB Annual Report 2013–2014 around local and regional ingredients; it also poor predictor of true inflation even over WP 332 made it difficult for the industry to reach a 12-month periods. Outside this range, the Japan Post Insurance: Unjustified Favoritism shared consensus on the taste and character- CPI is a much better measure of inflation. istics of the products. Our findings contribute We find that the U.S. PCE Deflator meth- Edward Lincoln, Professorial Lecturer, The to the literature on industry emergence by odology is superior to the Japanese CPI George Washington University; Research demonstrating how early category framing by methodology but still exhibits substantial Associate, CJEB external actors—whose interests may diverge measurement error and biases, rendering from those of consumers and producers—may it a problematic predictor of inflation in low November 2013 impact the nature of entrants, their product inflation regimes as well. Japan Post Insurance is the largest insur- development choices, as well as the long-run ance company in Japan—indeed, in the world legitimacy of the industry itself. WP 331 when measured by assets ($1.1 trillion in March 2013). Beyond the market power of Five Years Later: Lessons from the Finan- WP 330 sheer size, government ownership results in cial Crisis undue benefits because it enables inappro- How Much Do Official Price Indexes Tell Us priate cross-subsidization, results in inef- Jeffrey R. Shafer, Founder, JR Shafer Insight about Inflation? ficiency and heightened risk, and violates October 2013 international principles of national treatment Jessie Handbury, Assistant Professor of Real for foreign firms participating in the domes- Estate, The University of Pennsylvania The deepest economic collapse in 75 years tic market. In short, government ownership occurred because of a widespread failure Tsutomu Watanabe, Professor, Graduate raises issues of a tilted playing field. Further, across the financial system rather than a School of Economics, Faculty of Economics, economic theory provides no justification for single cause. In order to safeguard the econ- University of Tokyo the existence of Japan Post Insurance (JPI) as omy in the future, I propose in this paper a government-owned institution. The obvious David E. Weinstein, Carl S. Shoup Professor of that strong regulation, implementation, and conclusion is that JPI needs to be completely the Japanese Economy and Chair, Department enforcement of systemic protections and privatized in both form and substance. That is, of Economics, Columbia University; Director emergency lending capabilities are needed. I not only should the government-owned Japan of Research, CJEB examine the problems that converged to cre- Post Holdings sell all shares of JPI to the pub- ate the financial crisis and provide 10 insights October 2013 lic, but also the rules and regulations pertain- from that period. Among the causes of the ing to the privatized firm should be identical crisis I examine: global imbalances, a housing Official price indexes, such as the CPI, to those for the rest of the insurance industry. bubble, loose monetary policy, a very large are imperfect indicators of inflation calcu- If JPI is not privatized, then the government increase in short-term market financing of lated using ad hoc price formulae different should regulate it in a manner that avoids the broker dealers and portfolios, excessive lever- from the theoretically well-founded infla- distortions analyzed in this paper. tion indexes favored by economists. This age, and shadow banking. The paper provides paper provides the first estimate of how new insight into how the crisis is connected to accurately the CPI informs us about “true” the fall of residential mortgage-backed securi- WP 333 inflation. We use the largest price and quan- ties prices and their drop in value as collateral. Nonlinear Pricing of Japanese Newspapers tity dataset ever employed in economics to It also discusses the connection to incentive build a Törnqvist inflation index for Japan compensation and to opacity driven by com- David Flath, Professor, Department of Eco- between 1989 and 2010. Our comparison plex financial instruments such as collateral- nomics, Ritsumeikan University of this true inflation index with the CPI ized debt obligations (CDOs), derivatives, and December 2013 indicates that the CPI bias is not constant exotic mortgages, which may not have been but depends on the level of inflation. We fully understood by many who dealt with them, In Japan, the newspapers with the great- show the informativeness of the CPI rises including those who designed them. est daily circulation offer both morning and with inflation. When measured inflation is evening editions in most of their distribution low (less than 2.4% per year), the CPI is a areas. Their prices per page of actual content

CJEB Annual Report 2013–2014 | 23 for morning-and-evening subscribers are dif- newspapers have rarely changed their sub- competition among firms to acquire new cus- ferent from that for morning-only subscribers, scription prices in recent years, and the three tomers yields winners with a large number so the subscription price schedules could leading national dailies, together accounting of customers, as well as losers with fewer be described as sliding scales. These are for about half the total industry circulation, customers. We also show that the shortest tariff schedules that are step functions, and and 13 other papers accounting for another path length for any pair of firms is, on average, thus nonlinear. My focus is on two aspects one-eighth of industry circulation, all have set 4.3 links. Second, we find that link switching of nonlinear pricing by Japanese newspa- exactly the same price (3,925 yen per month is relatively rare. Our estimates indicate that pers. The first is that pricing and circula- for combined morning-and-evening editions, the survival rate per year for customer links is tion of the differing editions reveal parame- and 3,007 yen per month for morning-only). 92 percent and for supplier links 93 percent. ters of the demand for newspaper content. The remaining local papers have all set lower Third and finally, we find that firm growth rates I estimate these parameters using nonlinear prices. Econometric analysis here shows that tend to be more highly correlated the closer least squares and find that price elasticity Japanese newspaper subscription prices two firms are to each other in a customer-sup- of demand is around 1.2, while elasticity of are far below the levels that would maximize plier network (i.e., the smaller is the shortest demand with respect to pages of content is joint profit, given the newspaper content. The path length for the two firms). This suggests around 0.5. Estimates from microdata have authorized resale price maintenance, and pro- that a nonnegligible portion of fluctuations price elasticity around 1.3 and elasticity with hibition against prices that vary geograph- in firm growth stems from the propagation of respect to pages of content around 0.4. The ically, seems to have allowed only modest microeconomic shocks—shocks affecting only second aspect of nonlinear pricing on which collusive price increases. a particular firm—through customer-supplier I focus is the distorting effect of demand- chains. ers’ incentive compatibility constraints on the WP 335 newspaper publishers’ choice of newspaper WP 336 content. The newspaper publishers wastefully The Structure and Evolution of Buyer- reduce the number of pages of content of their Supplier Networks Spinning Tales about Japanese Cotton morning editions to deter morning-and-eve- Spinning: Saxonhouse (1974) Then and Takayuki Mizuno, Associate Professor, ning subscribers from canceling their evening Now subscriptions. It is wasteful in the sense that Information and Society Research Division, the marginal value to subscribers of an addi- National Institute of Informatics Serguey Braguinsky, Associate Professor, Department of Social and Decision Sciences, tional page of content in the morning edition Wataru Souma, Associate Professor, College Carnegie Mellon University is less than the marginal cost. But the waste is of Science and Technology, Nihon University small. It is here estimated to be around 4 yen David A. Hounshell, David M. Roderick Tsutomu Watanabe, Graduate School of per morning-only subscriber per month. Professor of Technology and Social Change, Economics, Faculty of Economics, University Department of Social and Decision Sciences, of Tokyo WP 334 Carnegie Mellon University February 2014 Japanese Newspapers February 2014 In this paper, we investigate the structure and This paper revisits the story of technology David Flath, Professor, Department of evolution of customer-supplier networks in adoption and diffusion in the Meiji-era cotton Economics, Ritsumeikan University Japan using a unique dataset that contains spinning industry in Japan, the study of which information on customer and supplier linkages December 2013 was pioneered by Gary Saxonhouse in an for more than 500,000 incorporated non- article published in JEH exactly 40 years ago. In Japan, newspapers enjoy a special exemp- financial firms for the five years from 2008 Using a novel data set and modern methodol- tion from antimonopoly prohibitions against to 2012. We find, first, that the number of ogy, we argue that both the ease with which resale price maintenance (suppliers’ stipula- customer links is unequal across firms; the the best technology was diffused and the role tions that bar downstream firms from price customer link distribution has a power-law of “slavish imitation” in this process may have discounting), but are each required to set tail with an exponent of unity (i.e., it follows been overstated. We find an important role uniform prices throughout Japan. In fact, the Zipf’s law). We interpret this as implying that

24 | CJEB Annual Report 2013–2014 played by market competition, including asset likewise followed by South Korea and Taiwan OP 63 reallocation. Our analyses provide research- and is currently most actively repeated by Hagihara Industries Inc. ers with even richer insights into general ques- China in its efforts to secure overseas min- tions of innovation, technology diffusion, and erals and fuels. Hugh Patrick, R. D. Calkins Professor of economic growth. International Business Emeritus; Director, CJEB

WP 337 2013–2014 August 2013

Explaining the Rise of East Asian Multi- Occasional Papers I visited Hagihara Industries in Kurashiki City, nationals: State-Industry Links, a Stages OP 62 Okayama Prefecture, in April 2013, finding Model of Structural Change, and Japan as a a fascinating, highly specialized textile com- Precedent Setter Abenomics: Japan’s New Economic Policy pany. The company was founded in 1892, Package when Fuichi Hagihara entered the tatami Terutomo Ozawa, Professor Emeritus of (Japanese floor mat) business. In 1946, Economics, Department of Economics, Hugh Patrick, R. D. Calkins Professor of his son Fuichi Hagihara II entered the com- Colorado State University International Business Emeritus; Director, pany, and in the 1950s invented a very thin CJEB March 2014 polyester monofilament called “flat yarn” to July 2013 replace the cotton thread holding the mat This paper examines state and industry link- reeds together. In 1962, the son estab- ages in the course of the rise of multina- This paper addresses Japan’s economy, its lished Hagihara Industries to produce flat tionals in emerging markets by drawing on new economic policy package, and the new yarn based on equipment he developed and East Asian experiences. Multinationals are term—Abenomics—that is used to describe built. Today, the company—still managed by both a creature and an instrument of indus- the three pillars, or “arrows,” of the Abe gov- the Hagihara family—produces a wide range trial structural change that characterizes the ernment’s focus on the Japanese economy of products for industrial uses based on process of economic development. In order and on economic policy. The term Abenomics flat yarn. It has two divisions: the synthetic for emerging markets to initiate and sustain is an example of brilliant branding. At the resin-processed product division makes and catch-up industrialization, they need gov- same time it is risky, since it implies Prime sells processed synthetic resin-related prod- ernment involvement to spark a takeoff and Minister Abe’s success or failure will depend ucts based on flat yarn, and comprises about nurture their own multinationals so that they on the success or failure of Abenomics. This three-quarters of sales; and the machinery can exploit overseas business opportunities paper makes three major points. First, it is product division designs, manufactures, and at each stage of structural change. Hence, far too early to tell whether Abenomics will sells automation equipment such as slit and a stages model of growth with five tiers of be successful—in ending deflation, bringing winder machinery, a quarter of sales. Its industry is adopted as an overall analytic. In about price stability, and getting the econ- two main strengths are its commitment to this regard, Japan set two precedents in (i) omy onto a stable, full employment growth innovation and maintenance of a strong cor- transplanting low-wage production abroad path. Second, perhaps the most import- porate culture, emphasizing quality, close via outward FDI as a catalyst for indus- ant change is the shift in people’s feelings working relationships, and interdependence; trial upgrading at home (i.e., what may be about Japan’s future, from resignation to and a widespread feeling of ownership by the called “comparative advantage recycling in optimistic hope. However it is not at all clear workers. Hagihara Industries is an example low-wage production”), and (ii) combining its that this new mindset will become deeply of a Japanese small listed enterprise that resource-seeking FDI with economic cooper- ingrained and sustained. Third, we should manufactures niche products for broad mar- ation in emerging host economies (i.e., devel- distinguish between Abe as prime minister kets, as distinguished from small- and medi- opment-oriented resources diplomacy). The and Abenomics. um-sized enterprises that sell most of their precedent of low-wage production transplan- output to a dominant customer. From tatami tation was followed by the NIEs and has just to high-tech synthetic-fiber products, the begun to be replicated by China. The prece- company has woven a history of innovation. dent of FDI-cum-economic cooperation was

CJEB Annual Report 2013–2014 | 25 OP 64 OP 65 OP 66

Ryobi Holdings Company and Ryobi Group Insurance Enterprise Risk Management: Japan’s Abenomics: Recovery Leading to Toward the Next Generation Good Growth? Hugh Patrick, R. D. Calkins Professor of International Business Emeritus; Director, Shigeyuki Goto, General Manager, Corporate Hugh Patrick, R. D. Calkins Professor of Inter- CJEB Risk Management Department, MS&AD national Business Emeritus; Director, CJEB Insurance Group Holdings, Inc. August 2013 December 2013 November 2013 I visited Ryobi Holdings Company in April As Japan enters an era of political stability 2013 and found one of the most interesting The practice of enterprise risk management under Prime Minister Shinzo Abe, Japan is and impressive companies I have ever seen. (ERM) in the insurance industry has improved poised to recover from the past two decades Owned by the Matsuda family, it was founded in recent years. This is partly because insur- of mediocre performance toward good, sus- in 1910 as the Saidaiji Railroad Company. It is ers have strived to reinforce risk-based man- tained economic growth. Abe, a strong leader extraordinary in its articulation of its basic phi- agement, and partly due to regulatory pres- who will not be replaced until at least 2016, losophy, its vision, its organizational structure sure triggered by the financial crisis as well is giving priority to a much-touted economic and managerial style, its innovative search as increasingly large natural catastrophes. program termed Abenomics, comprising for new products and markets, and its out- Insurers’ activities have expanded across three “arrows”: ending deflation and achieving standing and profitable growth performance. many countries and markets. They must work price stability, defined as a 2 percent annual Its employment system combines merit and within an increasingly difficult and compli- increase in the CPI; achieving stable, long-run, seniority. In this paper, I describe the organiza- cated environment due to rapid globaliza- full employment GDP growth over the next tional structure of this multifaceted company. tion, technological development, and changes decade; and fiscal consolidation bringing an With about 8,400 employees, Ryobi Holdings in nature (particularly in terms of climate end to enormous government budget deficits is the lead company of a group of small and change and earth movement). In order to and debt. This paper explores these programs, medium enterprises in three broad catego- overcome such increasing uncertainty around focusing on macroeconomic demand man- ries: local transportation, consumer goods the Internationally Active Insurance Groups agement and the growth strategy. I briefly and services, and information technology. (IAIGs), they should improve their ERM, and consider the Trans-Pacific Partnership and In total, there are 52 relatively autonomous regulators and insurers should cooperate with changes in the agricultural, electric power, small companies under the central leadership each other in order to create a market-based corporate, and international trade sectors, and decision making of the Matsudas. All of solution for these extreme events. This paper and identify the key challenges to implement- these companies operate under a philosoph- aims to review the current actions of regula- ing good economic growth. Despite these ical spirit of “wholehearted sincerity,” with tors and insurers, and then summarize how we challenges, Abe’s strong political statements, three guiding principles: adherence to high improve insurance ERM toward the next gen- public support, and the power of the LDP lead- ethical and moral standards to achieve justice eration. The main components to consider are ership provide hope for long-awaited change in solving problems through consideration and complementary mechanisms for the bounds in Japan. sincerity; customer first; and happiness of the of internal model and rational decision mak- employees. One of Ryobi’s greatest strengths ing, and the reinforcement of a market-based is its very active search for new market oppor- solution mechanism. tunities, in terms both of goods and services and at new locations; another is applying new technologies. Ryobi is an example of the continued importance of the Japanese entre- preneurial spirit.

26 | CJEB Annual Report 2013–2014 the new Global Financial Architecture

The New Global Financial Architecture

Building upon CJEB’s “Program on Alternative placed on Japan and the United States, this, commitments for three years. We encourage Investments,” which ran successfully from necessarily, is in the broader context of the anyone interested in becoming involved in the 2002 to 2009, the Center established a global financial system and all of its major NGFA program to contact us. program in July 2009 titled “The New Global players. Topics include, but are not limited to, This year, CJEB held a number of NGFA Financial Architecture” (NGFA). The purpose financial system restructuring; development events, including two major NGFA confer- of the NGFA program is to engage in analyt- of national and international regulatory sys- ences, one at Columbia University, “State ical and policy-oriented evaluations of major tems; effective governance, supervision, and Intervention and Private Enterprise: Japan, global financial and economic issues and reg- monitoring; the operations of and interactions the U.S., and China” in October 2013 (see p. ulatory changes through conferences, brain- among specific financial markets; the relation- 28) and one in Tokyo, “Restoring the Japanese storming sessions, and research activities, ships between finance and the performance Economy” in May 2014 (see p. 29). with, of course, a major emphasis on Japan. of the economy; and the nature and role of government and monetary policies. The program brings together distinguished finance and economics professors at The NGFA program began with CJEB seed Columbia Business School and other parts funding, and in 2011 Aflac Japan became of the University with scholars and finan- the first sponsor. The Center continues to cial market participants in the United States, seek a small number of appropriate spon- Japan, Europe, and China. While emphasis is sors prepared to make significant annual

CJEB Annual Report 2013–2014 | 27 Each year, CJEB organizes and hosts numerous major conferences, symposia, lectures, workshops, and seminars events featuring outstanding speakers. These programs bring together students, academics, members of the private sector, and policymakers from Japan and the United States. The 2013–2014 events are listed below, split into the following sections: Conferences, Symposia, Lectures, Workshops, and Lunchtime Seminars. All professional titles listed for participants are accurate at the time of the event. In addition to the descriptions below, videos and reports can be found on CJEB’s website: www.gsb.columbia.edu/cjeb. Conferences

From left to right: Gary Clyde Hufbauer, Christopher J. Mayer, Yasheng Huang, Long Ke, Kazuhiko Toyama, Kazumasa Kusaka, Hugh Patrick

State Intervention and Discussants: Christopher J. Mayer, Paul Panel III: Japan Milstein Professor of Real Estate, Columbia Speaker: Kazuhiko Toyama, Representative Private Enterprise: Japan, Business School the U.S., and China Director and CEO, Industrial Growth Roger Kubarych, Vice Chairman, Craig Platform, Inc. October 2, 2013; Columbia University Drill Capital; Former National Intelligence Discussants: Sota Kato, Professor, Manager, National Intelligence Council The purpose of this conference was to exam- International University of Japan; Senior ine government buyouts of distressed pri- Moderator: Merit E. Janow, Dean; Professor Fellow, Tokyo Foundation vate enterprises and government ownership of Professional Practice, International Edward Lincoln, Professorial Lecturer, of companies. Speakers gave presentations Economic Law and International Affairs, George Washington University; Adjunct focused on the general policy and rationale for School of International and Public Affairs Professor of Economics, Department of government intervention in firms in the United (SIPA), Columbia University Economics, Columbia University States, Japan, and China. Topics included Panel II: China deregulation, privatization, and how the Trans- Moderator: Alicia Ogawa, Senior Advisor, CJEB Pacific Partnership (TPP) will define the rules Speaker: Yasheng Huang, International Roundtable: for trade and other international operations. Program Professor in Chinese Economy and This conference was cosponsored by the Business; Professor of Global Economics U.S. Japan Economic Foundation (JEF) in Tokyo and Management, MIT Sloan School of Gary Clyde Hufbauer and the Center for Japanese Legal Studies Management Christopher J. Mayer (CJLS) at Columbia Law School. Discussant: Long Ke, Senior Fellow, China Welcome Remarks: Economic Research Center, Fujitsu Yasheng Huang Research Institute Hugh Patrick, Director, CJEB Long Ke Kazumasa Kusaka, Chairman and CEO, JEF Moderator: Curtis J. Milhaupt, Parker Japan Professor of Comparative Corporate Panel I: United States Kazuhiko Toyama Law; Director, Parker School of Foreign Kazumasa Kusaka Speaker: Gary Clyde Hufbauer, Reginald and Comparative Law; Fuyo Professor of Jones Senior Fellow, Peterson Institute for Japanese Law; Director, CJLS, Columbia Law Moderator: Hugh Patrick International Economics School Closing Remarks: Curtis J. Milhaupt

28 | CJEB Annual Report 2013–2014 From left to right: Haruhiko Kuroda, Tokyo Conference Panelists and Speakers, Adam S. Posen

Restoring the Japanese Professor of Economics and International Nobusuke Tamaki, former Councilor, Affairs, Columbia University Government Pension Investment Fund; Economy Professor, Otsuma Women’s University Takatoshi Ito, Professor, National Graduate CJEB Tokyo Conference Institute for Public Studies, Project Professor, Osamu Yamamoto, Partner, Unison May 15, 2014; Otemachi Financial City Graduate School of Public Policy, The Capital, Inc. Conference Center, Tokyo, Japan University of Tokyo Closing Remarks: Hugh Patrick This conference brought together eco- Paul Sheard, Executive Managing Director, nomic specialists in Japan and the United Chief Global Economist and Head of Global States to discuss current global economic Economics and Research, Standard & Poor’s The Japan Project issues. Ratings Services LLC Meeting with Joint ESRI

Welcome Remarks: Keynote: What the U.S. Can Learn from International Conference Abenomics David E. Weinstein, Chair, Department of July 31–August 1, 2014; Asian Development Economics; Carl S. Shoup Professor of the Speaker: Adam S. Posen, President, Peterson Bank Institute, Tokyo, Japan Japanese Economy, Columbia University; Institute for International Economics The Japan Project Meeting is held annually Director of Research, CJEB Moderator: David E. Weinstein by CJEB in partnership with the National Keynote: Toward Overcoming Deflation Bureau of Economic Research (NBER), the Panel II: Where is the Risk Capital Center for Advanced Research in Finance in Japan? Speaker: Haruhiko Kuroda, Governor, Bank of (CARF) at The University of Tokyo, and the Japan Moderator: Alicia Ogawa, Senior Advisor, Australia-Japan Research Centre (AJRC) Moderator: Hugh Patrick, Director, CJEB CJEB at the Crawford School of Public Policy of The Australian National University (ANU). Panelists: Panel I: Monetary Policy in International Professor Weinstein organized this two-day Takumi Shibata, President and CEO, Nikko Comparative Perspective academic conference with Professors Shiro Asset Management Co., Ltd. Armstrong of ANU, Charles Horioka of the Moderator: David E. Weinstein Yasuhisa Shiozaki, Member, House of University of the Philippines, Takeo Hoshi of Panelists: Representatives of Japan Stanford University, and Tsutomu Watanabe Richard H. Clarida, C. Lowell Harriss of The University of Tokyo. The organizers

CJEB Annual Report 2013–2014 | 29 From left to right: David E. Weinstein, Haruhiko Kuroda, Hugh Patrick, Yasuhisa Shiozaki

are grateful to the Asian Development Authors: Gary Hansen, University of California, (chaired by Takeo Hoshi, Stanford Bank Institute, the Shorenstein Asia-Pacific Los Angeles and NBER; Selo Imrohoroglu, University and NBER) Research Center at Stanford University, and University of Southern California Lending to Unhealthy Firms in Japan during Miki Futagawa of the European Institute of the Lost Decade: WTF? Japanese Studies for their generous assis- Discussant: Fumio Hayashi, Hitotsubashi University and NBER tance and support. Authors: Joe Peek, Federal Reserve Bank of Boston; Suparna Chakraborty, University of The ESRI International Conference, spon- How Much Do Official Price Indexes Tell Us San Francisco sored by the Economic and Social Research about Inflation? Institute (ESRI) of the Cabinet office of the Authors: Jessie Handbury, University of Discussant: Daisuke Miyakawa, Nihon Government of Japan, is held jointly with the Pennsylvania and NBER; Tsutomu Watanabe, University Japan Project meeting every year. This year’s The University of Tokyo; David E. Weinstein, ESRI Conference was titled “For Sustainable Aging and Deflation: Japanese Columbia University and NBER Growth of Japan’s Economy,” featuring, Experience among other high-level speakers, CBS’s Dean Discussant: Masahiro Higo, Bank of Japan Authors: Shigeru Fujita, Federal Reserve Glenn Hubbard. Bank of Philadelphia; Ippei Fujiwara, ANU Time Consistency and the Duration of Please see below the agendas for both the Government Debt: A Signalling Theory of Discussant: Jon Steinsson, Columbia Japan Project and the ESRI Conference. A Quantitative Easing University and NBER summary of the ESRI International Conference can be found on pp. 32–35. Authors: Saroj Bhattarai, Pennsylvania Panel Discussion: State University; Gauti Eggertsson, Brown Panelists: Anil Kashyap, The University of University and NBER; Bulat Gafarov, Chicago and NBER; Ryutaro Kono, BNP The Japan Project Meeting Pennsylvania State University Paribas; Sayuri Shirai, Bank of Japan Welcome Remarks: Discussant: Emi Nakamura, Columbia Moderator: Takeo Hoshi, Stanford University University and NBER Naoyuki Yoshimo, Dean, Asian Development and NBER Bank Institute Lunch speaker: Yasuchika Hasegawa, Production Networks, Geography, and Firm Fiscal Reform and Government Debt in Chairman of the Board and CEO, Takeda Performance Japan: A Neoclassical Perspective Pharmaceutical Company Limited

30 | CJEB Annual Report 2013–2014 From left to right: Glenn Hubbard, Adam S. Posen, Glenn Hubbard, Anil Kashyap, David E. Weinstein

Authors: Andrew Bernard, Dartmouth ESRI International Panel Session: For Sustainable Growth of College and NBER; Andreas Moxnes, Japan’s Economy Dartmouth College and NBER; Yukiko Conference: “For Coordinator: Anil Kashyap, The University of Saito, RIETI Sustainable Growth of Chicago Discussant: Makoto Nirei, Hitotsubashi Japan’s Economy” Panelists from U.S.: Glenn Hubbard, Dean, University CBS; Adam Posen Acquisitions, Productivity, and Profitability: Session I: Growth Agenda for Japan Panelists from Japan: Kazumasa Iwata, Evidence from the Japanese Cotton “Making Real a Growth Agenda for Japan” President, Japan Center for Economic Spinning Industry Chair: Masao Nishikawa, President, ESRI Research; Takatoshi Ito, Professor, National Authors: Serguey Braguinsky, Carnegie Graduate Institute for Policy Studies and The Mellon University; Atsushi Ohyama, Hokkaido Presenter: Adam Posen, President, Peterson University of Tokyo University; Tetsuji Okazaki, The University Institute for International Economics of Tokyo; Chad Syverson, The University of Discussant: Shin-ichi Fukuda, The University Chicago and NBER of Tokyo Discussant: Tatsuo Ushijima, Aoyama Gakuin Session II: Household Consumption University Behavior in Japan The Unfairness Trap: A Key Missing Factor “Do the Rich Save More? Evidence from in the Economic Theory of Discrimination Japanese Micro Data in the 2000s” Authors: Jordan Siegel, Harvard Chair: David E. Weinstein, Columbia University; Naomi Kodama, Hitotsubashi University University; Hanna Halaburda, Harvard University Presenter: Masahiro Hori, Senior Research Fellow, ESRI Discussant: Miki Kohara, Osaka University Discussant: Gary Hansen, University of California, Los Angeles

CJEB Annual Report 2013–2014 | 31 ESRI International Conference: For Sustainable Growth of Japan’s Economy Special Report

August 1, 2014 agriculture, female workforce participation, A success story still under way is the rise tax code, and government pension investment of female participation in Japan’s workforce, The Economic and Social Research Institute fund (GPIF) reform, along with cooperation with more than 500,000 women entering the (ESRI) held this international conference at the between monetary and fiscal policy, are what labor market in the past twelve months. This is Asian Development Bank Institute in Tokyo. It Japan should concentrate on. Marked suc- a good beginning, but more needs to be done, consisted of three sessions, each designed cess in GPIF reform as well as the positive especially on the supply side. This could be to offer a different yet related perspective on cooperation between the Bank of Japan and achieved by providing more available public Japan’s prospects for growth. Government of Japan since spring 2013 is child care, changing the law on joint taxes Dr. Masao Nishikawa, president of ESRI, gave praiseworthy, as is progress on women in the to better incentivize entering the workforce, the opening remarks, noting that a year and workforce. These should not be replaced by and offering write-offs for private child care a half after the inception of Abenomics, the new reform objectives, however, until more is or parental child care. We know these types Japanese economy shows signs of a steady accomplished. Doing so, Dr. Posen warned, of policies work after witnessing success in and prolonged recovery. However, many chal- would be detrimental to making real a growth Sweden, Germany, and elsewhere, yet the bill lenges remain. This conference, he said, was agenda for Japan, risking a loss of focus, going to the Diet is focused on affirmative designed to help identify important issues momentum, and credibility. action and monitoring of the percentage of as well as offer insight on potential solutions women in management position in the private Dr. Posen remarked that two regional policy to these challenges to sustainable economic sector. These are important, but not suffi- issues—special economic zones and agricul- growth in Japan. cient. ture—have emerged as particularly worrisome Session I: Growth Agenda for Japan in that they both cater to certain constituen- Dr. Posen identified the issue of fiscal sustain- cies, to the detriment of national welfare. The ability as looming in the background. Some The first session was chaired by Dr. Nishikawa. initiative to create special economic zones argue for broadening the base and introducing Dr. Adam Posen, president of the Peterson in order to increase competition in the small an identification system to increase tax reve- Institute for International Economics, pre- business and health care sectors, while worth- nue from small and medium-sized businesses. sented his views on “Making Real a Growth while, has fallen victim to regional politics Others favor major cuts to social entitlements Agenda for Japan,” while Dr. Shin-ichi Fukuda, governed by pernicious electoral pandering. and public spending. In certain respects, there professor at The University of Tokyo, served Broadly speaking, it is favorable to increase is progress to be made on both of these as the discussant. rather than decrease labor mobility and to tie fronts, but neither of these approaches offers the credibility, transparent implementation, Dr. Posen began by drawing connections policy benefits to citizens, not regions. The or symbolic value of further consumption tax between conventional understandings of eco- glacial pace of agricultural reform is also of increases that would bring Japan to a compa- nomic theory and potential policy implemen- concern. For Japan to enter important trade rable level with other advanced democracies. tation strategies for “making real a growth networks like the Trans-Pacific Partnership In terms of immediate effect on long-term agenda for Japan.” He urged policymakers to (TPP), it must overcome the hurdles posed sustainability, Dr. Posen said that there is focus on the structural and supply side of the by the small yet entrenched special interest little that can substitute for a value-added tax economy, as well as certain practical steps groups in the agriculture arena; foreign gov- increase. for realizing success in this agenda. Most ernments, including the United States, have made clear that exceptions will not be made. importantly, they should limit the number of In conclusion, Dr. Posen noted that political There has to be a clear path to zero tariffs policy objectives and winnow down the long capital is not finite as is often believed; push- for essentially everything but rice in order for list of issues facing the nation to a workable, ing through decisive victories multiplies politi- Japan to join the TPP, Dr. Posen said. If this is manageable few. While Dr. Posen believes cal capital. Similarly, shock therapy, otherwise not accomplished, efforts to open markets in that the Abe administration has thus far done known as the “Nixon-goes-to-China” effect, less developed members of TPP will not have a commendable job in this respect, it has can result in real political benefits for a strong, credibility. At present, both special economic recently shown signs of slipping back into forward-looking leader. The Abe administra- zones and agricultural reform favor regional a policy approach that has plagued Japan tion would do well to remember these political electoral logistics at the expense of citizen for two decades—one in which a priority of lessons when going up against opponents of interests and should thus be treated with direction and reform is not clearly defined Japan’s growth agenda. or understood. The issues of health care, caution.

32 | CJEB Annual Report 2013–2014 Dr. Fukuda touched on Dr. Posen’s topics and Session II: Household Consumption added insight on other issues he believes are Behavior in Japan also vitally important to long-term Japanese The second session was chaired by David E. growth. He began by noting that forces tra- Weinstein, Carl S. Shoup Professor of the ditionally in support of Japan’s domestic agri- with Y* standing for permanent income and X Japanese Economy at Columbia University culture industry have become much less influ- representing a set of other determinants of and director of research at the Center on ential in recent years and hold substantially savings behavior. To allow for nonlinearities Japanese Economy and Business at Columbia less power than many Japan observers might in the relationship, Dr. Hori parameterized Business School. Masahiro Hori, senior think. The difficulty in moving forward with f() using a set of five dummies capturing the research fellow at ESRI, presented a paper liberalization of the agricultural sector is due quintiles of lifetime income to which each entitled, “Do the Rich Save More: Evidence in large part to the rather widespread belief household belonged. A primary challenge here from Japanese Micro Data in the 2000s.” in Japan that the gains from doing so will be was that it is impossible to observe true Gary Hansen, professor of economics at the very marginal. In order to move past this, the lifetime income (Y*). If current income is used University of California, Los Angeles, served benefits to be realized from making conces- as a proxy, there is an upward bias, since as the discussant. sions in agriculture should be made clearer either measurement errors or the smoothing to the Japanese public. Dr. Fukuda agreed The primary research question Dr. Hori exam- of temporary income fluctuations will gen- that a further increase in the consumption ined was, “Do households with higher lifetime erate a positive relationship between sav- tax is needed to ensure fiscal sustainability, income save more than households with lower ing and current income. In order to address as is a recalibration of the social security lifetime income?” This long-standing empirical this estimation problem, Dr. Hori followed a expenditure rationale. The government must question in economics has important impli- similar approach utilized by previous studies recognize the severity of the situation in order cations for tax and macroeconomic policies, in this subject field and employed a two- to make impactful policy reform, especially in and a better understanding of the dynamic stage estimation procedure using instruments terms of creating a sustainable pension sys- between wealth, savings, and consumption correlated with lifetime income but not with tem. While Dr. Fukuda agreed with Dr. Posen will be important in revitalizing Japan’s econ- measurement errors and/or temporary income that monetary policy has been successful in omy. Recent studies have found that in both shocks. changing inflation expectations, he pointed the United States and Canada, a positive The key to this empirical strategy is the choice out that this has been driven largely by foreign relationship exists between savings rates and of instruments for lifetime income; instru- investors and that the optimistic expectations various proxies for lifetime income. However, ments must be correlated with true lifetime have primarily been a market and consum- researchers have not yet reached a consensus income but not with temporary components ers-based phenomenon, with producers still on how to interpret these findings, and studies or measurement error of current income. very hesitant to increase prices. Similarly, are sparse on Japan, which has a rapidly aging Considering the two datasets, five instru- while Dr. Fukuda agreed that increasing population that has traditionally held the bulk ments were identified as proxies to lifetime female labor participation is very important, of household savings. income. These were educational background so too is addressing challenges to low fertility and the longest job held (FLS) or current rates throughout Japan. One challenge that Dr. Hori’s study utilized two micro datasets occupation (FIES); lagged income (FLS and Dr. Fukuda said is worthy of policy attention on Japanese households: the Family and FIES); nondurable consumption (FLS); lagged that Dr. Posen did not discuss is the issue Lifestyle Survey (FLS) and the Family Income consumption (FLS); and information on the of productivity slowdown in Japan. Although and Expenditure Survey (FIES). Despite dif- prices households paid when purchasing cer- Japanese companies’ return on investment ferences in the survey design and sample tain goods as well as on asset holdings of indi- is generally positive, it lags far behind that of size, the basic statistics of each dataset were vidual households (FIES). For the first instru- their international counterparts. Therefore, similar. The empirical methodology utilized to ment, regression results found a positive and increasing the profitability and productivity of estimate the relationship between savings significant correlation between households Japanese firms is vitally important. In closing, rate and lifetime income was based on Dynan, with higher lifetime income and household he agreed with Dr. Posen’s call for dramatic Skinner, and Zeldes’s 2004 study “Do the savings rates, although the slope was flatter reform and benefits available in a “Nixon goes Rich Save More” in the Journal of Political than regression results, without incorporating to China” approach. Economy, where:

CJEB Annual Report 2013–2014 | 33 educational background and longest job held Session III: For Sustainable Growth of not make them impossible, as a look back over as proxies. Similarly, lagged income also Japan’s Economy the past decade in both the United States and resulted in a positive correlation between Japan attests. The third session was coordinated by Anil saving rates and income quintiles. A negative Kashyap, professor at The University of Dr. Iwata presented his views on the two mac- correlation was found when using nondurable Chicago. The panel speakers were Glenn roeconomic targets set forth in Abenomics: consumption. To examine this more closely, Hubbard, dean and professor at Columbia the targets of a 2 percent inflation rate within lagged consumption was also used as an Business School; Kazumasa Iwata, president two years and a 2 percent growth rate per instrument to address temporal issues with of the Japan Center for Economic Research; year until 2020. When looking at the issue of consumption. When a one-year lag in con- Takatoshi Ito, professor at The University of inflation, Dr. Iwata said he favors the “speed sumption was used, the correlation between Tokyo and National Graduate Institute for limit hypothesis,” a theorem he developed income and savings again turned significantly Policy Studies; and Adam Posen. along with Laurence Meyer, which is repre- positive. Results for both current income and sented as follows: subjective lifetime income as explanatory vari- Dean Hubbard focused his remarks on long- ables were similar across instruments. term growth and fiscal sustainability. He noted that both the United States and Japan In conclusion, Dr. Hori said, it appears that have performed well of late, with both the wealthy working-age Japanese do indeed U.S. Federal Reserve doing a commendable save more. However, it remains difficult to job in righting the U.S. economy post-Lehman prove that they save more simply because shock and Abenomics having a clearly positive they are wealthy; households that have cer- effect on Japan’s economy. However, thus far tain characteristics that lead them to become gains have largely been due to well-conceived rich may also tend to favor saving. While monetary policy, which, looking to the future, Professor Iwata then showed the graphic out- a clear-cut causal structure underlying the cannot alone eliminate the output gap in either put (below). He said that, in order to achieve relationship between wealth and savings has country, nor can it restore fiscal sustainability. the 2 percent target within two years, the Abe yet to be identified, the very fact that the rich The slowdown in productivity in Japan, an administration and Bank of Japan (BoJ) will save more has important implications for tax important factor in long-term growth, has been need to consider the appropriate course to and macroeconomic policies in both Japan due in large part to secular stagnation and, to take if the core CPI falls below 1 percent, as and abroad. some degree, to underinvestment. To increase the prediction based on the speed limit model Dr. Hansen urged the further development productivity growth, structural reforms should suggested. of a structural lifecycle model that delivers be a priority. Similarly, trade policy, in partic- As part of the recently released growth behavior consistent with empirical findings. To ular TPP, remains important and holds valu- agenda, the Abe administration includes main- this end, he suggested several influences wor- able potential for enhancing productivity and taining a population of 100 million into the thy of closer examination, including wealthy consumer gains, making the economy more future. Dr. Iwata suggested taking lessons people may be more patient (lower discount efficient amid a rising Chinese economy. In from French policy geared at increasing birth- rate) than the poor; the poor may engage terms of fiscal policy, there is huge potential rates and said that Japan should aim for a in strategic dissaving in order to qualify for in Japan for tax reform, Dean Hubbard said, long-term rate of 1.8. This will influence fiscal public welfare programs; the wealthy are more particularly by reducing corporate income policy; childrearing payments may need to likely to leave large bequests to children; and taxes. Broadly speaking, the method by which double from current levels. perhaps the most promising line of inquiry, fiscal consolidation is achieved will affect the precautionary savings motives of the wealthy prospects for economic growth directly and Professor Ito said that the first arrow of resulting from expected long-term health care thus should be treated with due urgency if Abenomics, monetary policy, has been a costs may come to bear on saving behavior. Japan’s rather optimistic ten-year target of “great success,” and that the second arrow, We need to know why the wealthy save more, 2 percent growth per year is to be achieved. fiscal stimulus, has been a “good success.” said Dr. Hansen. Dean Hubbard ended his remarks by saying The third arrow, structural reforms to boost that the fact that reforms are difficult does Japan’s competitiveness, has shown progress

34 | CJEB Annual Report 2013–2014

toward becoming a success, with a consol- Dr. Posen said that, in the long term, Japan idation of policy objectives from the 2013 should be concerned with how it can play revitalization strategy to a manageable, pri- a sufficiently influential role in the world to oritized few, under which 10 key reforms are ensure its own safety while its relative size is to be taken. The 2014 strategy also makes shrinking. The way to do this, Dr. Posen said, is clearer how this third arrow of Abenomics fits to take calculated risks with the economy and into known economic growth theory. More reach out to a broader global audience. This specifically, Professor Ito argued that the is fundamentally what the TPP is all about, three priority areas of the third arrow can be in terms of political, security, and economic seen as addressing fundamental supply sides influence regionally as well as globally. Dr. issues. For instance, if we make the standard Posen closed by saying that Japan should con- assumption that output is determined by labor ceive its policy agendas with a view toward usage (L), capital usage (K), and productivity becoming the financial, educational, and cul- (A), then we can think of the third arrow as tural hub for Asia that it was poised to become seeking to raise each of these components. in the late 1980s. The first, “Regaining Japan’s earning power,” seeks to increase and raise returns to K via enhanced corporate governance, promotion of venture business, corporate tax reform, and so on. The second policy direction of the revitalization strategy calls for “reinforcing the workforce.” Professor Ito interprets this as an increase in L, with enhancing women’s partici- pation in the workforce and attracting foreign talent as primary examples of labor-directed policy programs. Finally, “Nourishing new driv- ers of growth” seeks to raise A in heavily regulated industries, primarily via aggressive agriculture and health care industry policies.

CJEB Annual Report 2013–2014 | 35 Symposia

From left to right: Panel from April 30 “Hitting the Mark? The Third Arrow in Sharper Focus” event, Nobuo Tanaka

Decrypting Cybersecurity: The Future of Nuclear rapid evolution of the global energy trade, sup- ply-chain vulnerabilities, and the integration of Are We Ready to Meet Power major new economies into the world market. Tomorrow’s Emerging Center on Global Energy Policy (CGEP) The rapid growth in Asian energy demand, Threats? Symposium coupled with the dramatic transformations November 8, 2013; Columbia University due to the global shale revolution, have had Japan Society Corporate Program significant implications for Asian energy secu- October 30, 2013; Japan Society Nobuo Tanaka, a CGEP fellow and former rity, especially as countries seek to diversify executive director of the International Energy supply by both geographical source and fuel Several prominent cybersecurity experts Agency, spoke extensively on Japan’s energy type. For Japan, energy security can be partly shared insight as to what the latest trends industry and energy security in the Pacific achieved by offsetting its domestic resource and threats are in the cybersphere of both the Rim. Mr. Tanaka addressed an important ques- scarcity through source diversification, trade, United States and Japan, the best practices tion Japan now faces: How will it reestablish and investment. CJEB was an outreach part- for businesses to protect their digital informa- a diverse supply of energy resources that ner for this event. tion, and how the public and private sector can protects the environment and provides elec- work together to counter current and emerging tricity prices consistent with desired levels threats. With the increasing frequency and of economic growth and job creation? He complexity of cyber attacks that have targeted asserted that Japan must share the lessons Fukushima Three Years both the public and private sector, the issue it has learned for safer nuclear power gen- Later: Staying Behind and of how to enhance cybersecurity has become eration across Asia and around the world; an increasingly important one. The panelists Moving Forward furthermore, it should adopt a next genera- were Austin P. Berglas, assistant special agent tion reactor—the Integral Fast Reactor—as Consortium for Japan Relief Symposium in charge, Cyber Branch, New York Office, a source of power. Mr. Tanaka warned that March 9, 2014; Columbia University Federal Bureau of Investigation (FBI); Jeffrey without the restart of the nuclear industry, Greene, senior policy counsel for cybersecurity Three years after the devastating Tohoku Japan risks becoming a second-tier devel- and identity, Symantec Corporation; Thomas earthquake, tsunami, and Fukushima nuclear oped nation as high power prices may drive Harrington, managing director and chief disaster, this symposium focused on two manufacturing jobs and investment to other information security officer, Citi; and William themes: first, the current state of Fukushima parts of the world, harming economic growth. Saito, founder and CEO, InTecur, K.K. Ken and the ordinary, everyday lives of those who He also elaborated on the need to expand on Zimmerman, principal of Chateaux Software, live there; and second, why people, whether the current framework of energy security— moderated the discussion. CJEB was an out- from Fukushima, Japan, or the United States, reduced consumption combined with diversi- reach partner for this event. choose to live in Fukushima amid concerns fication of supply—in order to account for the

36 | CJEB Annual Report 2013–2014 publicly traded companies. Japan is unique in that subsidiaries of listed parent compa- nies are traded; as a result, Japan has the most subsidiaries of any other market. There is a growing market in taking public com- panies private, especially with subsidiaries. Following the discussion, Professor Weinstein moderated a question-and-answer session, and Professor Patrick closed out the program. The session was hosted by CJEB and cospon- sored by the Mitsui USA Foundation.

From left to right: Richard Folsom, Neal Doying about the economy, infrastructure, and radia- Richard Folsom, representative partner and Hitting the Mark? The Third tion contamination. Fukushima residents who cofounder of Advantage Partners, LLP, com- Arrow in Sharper Focus have stayed or returned have an incredibly menced the 15th Annual Mitsui Symposium Japan Society Corporate Program personal connection that motivates them to by providing his perspective as a private April 30, 2014; Japan Society do so, whether uplifting or somber. This sym- equity (PE) investor in today’s Japanese mar- posium sought to demonstrate this implicit ket and giving a detailed overview of recent Recent progress in Japan’s efforts to stem complexity but also to highlight ongoing ini- trends in the industry—particularly consid- its persistent deflation has been attributed tiatives designed to improve conditions in ering recent macroeconomic policy changes. to the three arrows of Abenomics; however, Fukushima. The goal was to demonstrate why He discussed positive developments stem- recent skepticism about the scale of struc- Fukushima is still relevant, and that the choice ming from Abenomics. Because of the Bank tural reforms, and the ability of the Abe by many to remain in Fukushima reflects the of Japan’s easing policies, equity markets administration to follow through, has led to fact that hope in the city still remains, and have appreciated, and the yen has already renewed calls for measures to ensure that the therefore, that the rest of the world should reached 1 percent of the 2 percent inflation Japanese economy will be put on a self-sus- remain committed to it as well. The partic- target. Regarding PE opportunities, Japan taining growth cycle. Yasutoshi Nishimura, ipants included Kenichi Bamba, Bridge for is a very attractive exit environment. When senior vice minister of the Cabinet Office Fukushima; Jake Price, photographer and pro- looking at overall control acquisitions, only 4 of Japan responsible for the three arrows ducer; Yuhei Suzuki, community organizer, percent are by PE, demonstrating an under- of Abenomics, discussed the progress and MPH candidate, Mailman School of Public penetrated market; considering Japan’s large time frame of structural reforms. Professor Health, Columbia University; Emily Taguchi, size, Mr. Folsom sees a long-term market Heizo Takenaka of Keio University, a lead- filmmaker and producer; Helen Verdeli, growth opportunity in the country. Bruce C. ing expert on structural reforms, shared his associate professor of clinical psychology, Greenwald, Robert Heilbrunn Professor of insight on the subject and sought to deter- Teachers College; and Serena Winchell, an Finance and Asset Management at CBS, was mine the current and future role of Japan alumna of the Japan Exchange and Teaching also optimistic about Japan’s PE market. He within the global economy. Other participants Programme. proposed that the source of Japanese stagna- included Paul Sheard, executive managing tion is not just demographics, but also produc- director, chief global economist and head of tivity growth; Japan should redeploy capital, Global Economics and Research, Standard & How to Buy Japan: Private labor, and management talent to its dynamic Poor’s Ratings Services, and Koichi Hamada, service sector. Imported institutions that are adviser to Prime Minister Shinzo Abe and Equity in a Global Economy willing to intervene are going to be critical to Tuntex Professor Emeritus of Economics, Yale make this happen. Finally, Neal Doying, senior The 15th Annual Mitsui USA Symposium University. David E. Weinstein moderated the vice president at Lazard Asset Management, April 23, 2014; Columbia University panel. CJEB was an outreach partner for this LLC, talked about the public-private space of event.

CJEB Annual Report 2013–2014 | 37 Lectures

From left to right: Gerald L. Curtis, Hugh Patrick, Nobuyuki Saji, Tomomi Inada

Abe and the LDP Are Back: by Columbia University’s Weatherhead East growth pattern has been swapped between Asian Institute (WEAI). Japan and the United States in the past 30 Now What? years; the driver of global economic growth September 25, 2013; Columbia University has shifted back to the United States and Abenomics and the Europe again. Given these circumstances, he Gerald L. Curtis, Burgess Professor of Political Japanese Market’s believes that Japan will seek GNP growth by Science at Columbia University, gave his keeping up good relations with other countries ninth annual lecture on Japanese politics as Potential and joining the TPP. He argued that the major part of CJEB’s Distinguished Lecture Series. Japan Study Student Association failure of Japanese enterprises has been hold- Professor Curtis noted that the reelection (JASSA)’s Lecture Series on Japanese ing on to their past successful experiences of Prime Minister (PM) Shinzo Abe, and the Economics and Politics and clinging to government bailouts. Finally, success of his policies thus far, has put him October 30, 2013; Columbia University he concluded that it is important to incorpo- in a stronger position than any other Liberal rate both the American way of originality and Democratic Party leader in recent years; he Nobuyuki Saji, the chief economist of the Japanese way of harmony in order to be is thus likely to serve several more years. Mitsubishi UFJ Morgan Stanley Securities successful. CJEB was an outreach partner for However, PM Abe will face obstacles, such as Co., Ltd., gave a lecture on the Japanese this event. economic structural reform, in his pursuit of the economy as part of CJEB and JASSA’s necessary dramatic changes in the Japanese Lecture Series. In the beginning, Mr. Saji men- economy. Professor Curtis criticized the prime tioned that he was skeptical about the effect The “Cool Japan” Strategy: minister for an unrealistic advocacy of “wom- of Abenomics. For example, he said that the Sharing the Unique Culture enomics” and argued that this type of policy yen’s depreciation caused by Abenomics ben- would be insufficient to address the under– efited only large companies, but not SMEs. of Japan with the World utilization and discrimination against women He pointed out that Japan’s large government Japan Society Corporate Program in the workplace. Regarding foreign policy, he deficit would prevent the fiscal stimulus from January 13, 2014; Japan Society stated that he did not feel that Abe’s actions functioning. He pointed out that Japan is so far justified his image as a right-wing ideo- facing two problems: an aging society and an In 2012, Her Excellency (HE) Tomomi Inada logue and “hawk.” Regarding the Senkaku/ expanding current deficit. In order to tackle was appointed by the newly elected Abe admin- Diaoyu Islands dispute, he said that a solu- this situation, he argued that Japan should istration as the first minister in charge of the tion was not possible at the time, and the undergo a drastic overhaul of Japan’s tax sys- “Cool Japan” Strategy—a plan to share Japan’s issue should be shelved while both countries tems, especially corporate tax; furthermore, unique food, fashion, and traditional culture with focus on “win-win” concerns. This lecture was it should join the TPP in order to achieve GNP the rest of the world, while also highlighting the moderated by Hugh Patrick and cosponsored growth. He then mentioned that the economic country’s hospitality culture and sightseeing

38 | CJEB Annual Report 2013–2014 From left to right: Lady Barbara Judge, Kenichiro Sasae, Richard Saul Wurman

attractions. At this lecture, HE Inada introduced Jason Bordoff moderated a discussion follow- recent engagement in negotiations after the government’s plan, saying that its success ing the presentation. CJEB was an outreach years of reluctance. The TPP is strategically will help revitalize its economy, encourage tour- partner for this event. important as a means to ensure an American ism, and strengthen Japan’s cultural and diplo- presence in the Asia-Pacific, according to matic ties abroad. Fred Katayama, anchor and Ambassador Sasae, who added that including producer of Thomson Reuters, and a member Japan and the World China in the TPP would encourage its leader- of the Board of Directors of Japan Society, ship to be more transparent. He concluded by Dean’s Lecture Series, School of Interna- moderated this event, for which CJEB was an saying that this kind of economic partnership tional and Public Affairs outreach partner. will lead to mutual trust and that it would aid in February 18, 2014; Columbia University security and political partnerships. Kenichiro Sasae, ambassador of Japan to the Nuclear after Fukushima: United States, began this lecture by reflecting Policies, Practices, and on the historical backdrop of trade relations Using Information to Build Problems between the United States and Japan follow- Transnational Bridges ing the Cold War in the 1990s. He recalled Center on Global Energy Policy Public that U.S. pressure on Japan to open up its March 6, 2014; Columbia University Lecture markets, particularly in the areas of trade and Richard Saul Wurman, founder of TED, shared January 30, 2014; Columbia University automobiles, created tensions that still persist his thoughts on innovation and technology and today, as seen in the context of ongoing nego- The event featured Lady Barbara Judge how he envisions the future of communication tiations for the proposed TPP. The ambas- CBE, former chairman of the UK Atomic and information-sharing to be in an increas- sador remarked that, on the whole, trade Energy Authority and currently deputy chair- ingly global environment. He encouraged the and economic relations between the United man of TEPCO’s Nuclear Reform Monitoring audience to take part in this informal talk by States and Japan have matured and sta- Committee and head of its task force on engaging in open discussion about how infor- bilized. Regarding Abenomics, Ambassador nuclear safety. Lady Judge talked about mation is shared, both within communities and Sasae noted that he sees this as a move the state of nuclear policy following the transnationally, through avenues like social toward a more flexible market and that this Fukushima accident, how Fukushima has media, corporate gatherings, and educational is what the economy needs. Commenting fur- affected global nuclear policy, and whether and research groups. Hugh Patrick moderated ther on the TPP, he stated that the prime min- nuclear power will remain an important and the dialogue. ister heralds the proposed pact as an import- viable part of the global energy mix. Merit E. ant strategic tool to galvanize growth and a Janow, dean of SIPA, introduced Lady Judge more robust foreign policy, reinforcing Japan’s and provided opening remarks. CGEP director

CJEB Annual Report 2013–2014 | 39 Post-Fukushima Energy such challenges, new hopes have emerged devoted to research and development, in about Japan’s political and economic situa- addition to long-term cultivation of IT talent Policy of Japan: The Role of tion. CJEB was an outreach partner for this to combat growing threats to Japan’s crit- Nuclear Power event. ical IT infrastructure. His Excellency Ichita Yamamoto, minister in charge of Information Center on Global Energy Policy Public Technology Policy, discussed the Japanese Lecture Revolutionizing Japan’s government’s plans to achieve these goals April 2, 2014; Columbia University Information and and turn Japan into a global leader in IT security innovation. Introductory remarks The CGEP hosted a discussion with Nobuo Communications Security Tanaka, CGEP fellow and former executive were offered by Thomas Harrington, manag- director of the International Energy Agency, Environment ing director and chief information security on the future of Japanese energy policy three officer at Citi. This lecture was moderated by Japan Society Corporate Program years after the accident at the Fukushima William Saito, special advisor in the Cabinet May 2, 2014; Citigroup’s Auditorium nuclear plant. Mr. Tanaka focused on the role Office of the Government of Japan and chief that nuclear power can play in supporting Following a series of high-profile cyber executive officer of InTecur, K.K. CJEB was Japan’s economic growth and energy security attacks on government institutions and an outreach partner for this event. and discussed how and what safeguards can corporations worldwide, the Japanese gov- be put in place to protect Japan from future ernment, like many others, has begun to disasters like Fukushima. CJEB was an out- take major steps in reforming its informa- Japan’s Fourth Strategic reach partner for this event. tion technology (IT) security standards in Energy Plan order to secure its communication networks. In March 2014, the National Information Center on Global Energy Policy Public Challenges and Security Center called for greater cooper- Lecture Perspectives for Japan: ation between firms and more resources June 9, 2014; Columbia Club Is Reconciliation Possible CGEP and the Japan External Trade Organization (JETRO) New York hosted a among Neighbors? presentation of Japan’s fourth strategic Japan Study Student Association Lecture energy plan by Toshikazu Okuya, director April 11, 2014; Columbia University of the Energy Supply and Demand Policy Office, Agency for Natural Resources and As Japan faces shifting power dynamics in Energy, Japan’s Ministry of Economy, Trade the region, many ask if its role will be rele- and Industry. This was the first such plan gated to that of a middle power in Asia, and since the Fukushima Daiichi nuclear disaster. if its wartime history, now seven decades in The strategic energy plan addresses a vari- the past, will continue to haunt its present ety of key energy issues, including: (1) the and future. Yukio Okamoto, former special role of nuclear power in Japan’s supply mix; advisor to several prime ministers of Japan (2) supporting the deployment of renewable and 2012–2013 Robert E. Wilhelm Fellow energy; (3) options to manage the pressure at MIT, reflected on the state of relations of rising energy costs for end-users; and between Japan and its neighbors, and the (4) continued U.S.-Japan energy coopera- possibility of reconciliation from Japan’s tion. David Sandalow, CGEP inaugural fellow, perspective. Okamoto also spoke to the moderated the presentation. CJEB was an stability and continuity of Japan’s alliance outreach partner for this event. with the United States. In this context, Mr. Okamoto elaborated on the challenges that Japan now faces. However, in spite of Yukio Okamoto

40 | CJEB Annual Report 2013–2014 Workshops

Northeast Asia Relations Anla Cheng, Senior Partner, Sino-Century Andrew J. Nathan, Class of 1919 Professor of China Private Equity Partner, LLC Political Science, Columbia University Workshop Gerald L. Curtis, Burgess Professor of Political Marcus Noland, Vice President and Director June 27, 2014; Columbia University Science, Department of Political Science, of Studies, Peterson Institute for International This private academic workshop was held in Columbia University Economics partnership with Columbia University’s APEC Karl W. Eikenberry, William J. Perry Fellow in Hugh Patrick, R. D. Calkins Professor of Study Center (ASC), WEAI, and SIPA. The first International Security, Center for International International Business Emeritus; Director, part of the workshop focused on China-Japan Security and Cooperation CJEB, Columbia Business School relations and discussions regarding how to ameliorate territorial, historical, and other ten- Takeo Hoshi, Henri and Tomoye Takahashi Ezra F. Vogel, Henry Ford II Professor of the sions, and ways that the United States can Senior Fellow, Walter H. Shorenstein Asia- Social Sciences Emeritus, Harvard University play a role in fostering a closer relationship Pacific Research Center, Stanford University Donald S. Zagoria, Senior Vice President, between the two as well as trilaterally. In the Merit E. Janow, Dean, SIPA, Columbia National Committee on American Foreign second part of the workshop, participants University Policy discussed the Korean peninsula and Japan- Korea relations, including historical points of Robert Jervis, Adlai E. Stevenson Professor For the official report for this workshop, please contention between South Korea and Japan, of International Politics, Columbia University visit http://issuu.com/columbiauniversitysipa/ multilateral approaches to North Korea policy, docs/sipa_weai_workshop/1 Charles D. Lake II, Chairman, Aflac Japan and U.S. policy toward North Korea. The final part of the workshop focused on the state of Winston Lord, Former U.S. Ambassador to the U.S. rebalance or “pivot” to Asia, possible China adjustments to U.S. alliance policies, and U.S. economic involvement in East Asia. The Xiaobo Lü, Professor of Political Science, workshop concluded with overall reflections Barnard College on how the group can make a positive contri- bution to efforts to maintain peace, stability, and economic growth in the region. Evan Medeiros, senior director of Asian Affairs at the National Security Council, gave a special talk at the dinner following the workshop.

Participants included:

Samuel R. Berger, Chair, Albright Stonebridge Group

Dennis C. Blair, Chairman, Sasakawa Peace Foundation USA

Richard K. Betts, Director, Saltzman Institute of War and Peace Studies, Columbia University

Stephen W. Bosworth, Senior Fellow, Belfer Center for Science and International Affairs, John F. Kennedy School of Government, Harvard University

Northeast Asia Relations Workshop

CJEB Annual Report 2013–2014 | 41 Lunchtime Seminars

From left to right: Kosuke Motani, Yosuke Honjo, Keiko Tashiro, Takatoshi Ito

CJEB organizes a lunchtime seminar series on a rapidly declining working-age population, he of China, decline of Japan, and U.S. preoccupa- campus for students, faculty, and members demonstrated the impact of this phenomenon tion with internal affairs have created natural of the citywide business community. These on the economic outlook of Japan and what incentives for a competitive relationship. He include zadankai, or informal discussions, lessons might be learned from this situation. asserted that, geoeconomically, while fisheries which involve lengthy question-and-answer This effect threatens many other Asian econ- and natural resources in disputed areas pro- periods with the audience and are geared omies as well, including China, South Korea, vide an incentive for conflict, the incentive for toward presenting new and interesting angles Taiwan, and Singapore. cooperation remains strong as conflict would for understanding Japanese business and inflict economic loss on both sides and that, economic issues; and brown bags, in which geoculturally, there is much focus on the issue CJEB collaborates with other organizations Stormy Seas: Japan’s of historical memory, including World War II and on campus to sponsor talks featuring a diverse Disputes over History and its aftermath, Japan’s handling of its wartime range of topics related to Japan. Seminars behavior, and differences in historical memory held during 2013–2014 included: Territory and the U.S.- according to the other East Asian countries. Japan Alliance In conclusion, Professor Berger spoke about the need for reconciliation, pointing out that Brown Bag The Key Challenge for the onus remains not only on Japan, but also October 1, 2013; Columbia University Abenomics: Demographic on its neighbors. This event was cosponsored by WEAI. Tsunamis Hitting Japan and Thomas Berger, Associate Professor of International Relations, Boston University Other East Asian Countries Moderated by Gerald L. Curtis, Burgess The Un-sweetening Zadankai Professor of Political Science, Columbia September 19, 2013; Columbia University University of America: ITO EN’s Contribution to the Kosuke Motani ’94, Chief Senior Economist, Professor Berger, author of War, Guilt, and Economics Department, Japan Research World Politics after World War II, analyzed the Beverage Market Institute, Ltd. ongoing territorial disputes in East Asia via Zadankai geostrategic, geoeconomic, and geocultural Moderated by Hugh Patrick October 8, 2013; Columbia University perspectives. According to Professor Berger, Mr. Motani discussed the “demographic tsu- geostrategically, the U.S. “pivot,” or rebalanc- Yosuke Honjo, President and Chief Executive nami” occurring in Japan, which has hindered ing of strategic efforts, toward Asia has made Officer, ITO EN (North America) Inc. high growth opportunities in spite of low China feel it is being encircled, so China is look- Moderated by Hugh Patrick unemployment, high productivity, and high ing for a way to challenge the United States liquidity. Citing startling statistics concerning and its allies. Furthermore, he added, the rise Mr. Honjo discussed the challenges of his

42 | CJEB Annual Report 2013–2014 From left to right: Sayuri Shirai, Yutaka Harada, Takashi Oyagi, Raymond Fisman, Daijiro Nogata initial efforts to introduce the Japanese bev- promoting freer trade through mechanisms Monetary Easing and erage company ITO EN’s line of unsweetened such as the Trans-Pacific Partnership, and teas to the United States, where sweetened challenging vested interests; ideally, this Communication Policy: A teas dominate the market. In 2002, he opened would stimulate investment and raise growth Review Based on Several a flagship shop, ITO EN New York, and contin- potential, erase fiscal debt concern, and com- Surveys ues to develop ITO EN (North America) Inc. plete the jump from a deflationary equilibrium through a dynamic marketing strategy. The to a normal equilibrium. Zadankai company has now successfully penetrated February 27, 2014; Columbia University the U.S. market and will continue to develop Sayuri Shirai, Policy Board Member, Bank of through new restaurants and acquisitions. Where Does All the Money Japan Go? How Japanese Moderated by Hugh Patrick The Third Arrow of Retailers Invest and the Effects of Abenomics Dr. Shirai shared the Bank of Japan’s (BOJ) Abenomics: How Far Will It Quantitative and Qualitative Monetary Easing Reach? Zadankai (QQE) policy strategy to reach a 2 percent January 30, 2014; Columbia University inflation rate. The focus of her presentation Zadankai was on the BOJ’s communication strategy, the October 24, 2013; Columbia University Keiko Tashiro, Chairwoman, Daiwa Capital public’s perception of inflation, and how the Markets America Holdings Inc. Takatoshi Ito, Dean, Graduate School of BOJ’s non-traditional methods could contrib- Public Policy; Professor, Graduate School of Moderated by Hugh Patrick ute to the success of this policy. Economics, The University of Tokyo Ms. Tashiro provided a comprehensive over- Moderated by Hugh Patrick view of the Japanese individual investment Abenomics: One Year Later market and the impact of Abenomics on Dean Ito discussed the current status of the this market. She also explained some of the Zadankai “three arrows” of Abenomics: monetary pol- Japanese government’s recent efforts to March 6, 2014; Columbia University icy, fiscal policy, and structural reform. The encourage investment in equities and shift Yutaka Harada, Professor, School of Political first area, monetary policy through inflation some of the traditional investing strategies Science and Economics, Waseda University targeting and yen deflation, was performing toward more market-facing ones. Finally, she on target. The second arrow, fiscal stimulus shared her experience as a female leader in a Moderated by David E. Weinstein through government debt financing, had been male-dominated field and, more generally, the Professor Harada analyzed the effective- effective in the short run. The third arrow was shifts in gender roles and participation in the ness of various “arrows” of Abenomics. First, still in progress and relied on a growth strat- Japanese labor market. egy achieved through removing regulations, he extolled the effectiveness of the first

CJEB Annual Report 2013–2014 | 43 arrow—bold monetary easing—but noted that How a Start-up with Four directions, particularly for Japanese compa- Japan’s policy was timid, resulting in a slow nies operating in China, though the effect was recovery after the Lehman shock. Second, he Employees Grew to Become tempered if they employed Chinese workers. showed that the flexible application of fiscal a Global Corporation stimulus, the second arrow, was not effective. Zadankai Finally, he talked about establishing a sound Do You Washlet? TOTO’s April 10, 2014; Columbia University growth strategy for stimulating private invest- Challenge in Breaking into ment, focusing particularly on the virtues of Takashi Oyagi, Chief Strategic Officer and a Mainstream America the proposed TPP currently under debate. Founder, Monex Group Zadankai Moderated by Hugh Patrick April 17, 2014; Columbia University The “History Problem” Mr. Oyagi described the growth strategy of his Daijiro Nogata, President and CEO, TOTO (rekishi mondai), start-up online brokerage company in Japan, Americas Holdings, Inc. Nationalism, and Foreign Monex Group, that focuses on providing inno- vative products, customer trust, and a democ- Moderated by Hugh Patrick Policy Preferences in Japan: ratization of capital markets. He identified Evidence from a Survey many of the challenges that were confronted, Mr. Nogata is on a mission to bring TOTO’s Washlets—a word combining “wash” and “toi- Experiment such as a deflationary economy, market satu- ration, rapid technological change, and fierce let”—to the mainstream U.S. market. While Brown Bag price competition and the decisions made in TOTO holds a 60 percent market share in April 8, 2014; Columbia University the face of these challenges. Monex Group Japan, its sales in the United States have been is now in 12 countries with almost 1,000 lagging. As a result, TOTO has developed a Yongwook Ryu, Research Fellow, Department employees and has diversified to include multifaceted U.S. marketing campaign, which of International Relations, School of Political financial software development as well as includes aggressive advertising, celebrity and International Studies, The Australian brokerage services. endorsements, architect collaborations, and National University targeting of the health care industry. TOTO’s new marketing campaign will also target large Dr. Ryu explored the persistence of the his- metropolitan markets in the United States, torical animosity between Japan, China, and How Sino-Japanese especially in high-density Asian populations South Korea almost 70 years after both the Turbulence Affects Trade familiar with bidet seats. Mr. Nogata pointed end of the second Sino-Japanese War and the Between the Two Countries out that one of the biggest hurdles to U.S. establishment of Korean independence. He market penetration is culture; Americans tend believes that the primary reason is that, for Zadankai to be squeamish about discussing bathroom politicians in all of these countries, it is advan- April 15, 2014; Columbia University activities. TOTO faces stiff competition, but tageous to bring up these issues because it it possesses several advantages, including a stirs up the nationalists in each country, while Raymond Fisman, Lambert Family Professor strong intellectual property portfolio and an the general population itself does not care of Social Enterprise; Codirector, Social extensive global team. This event was cospon- very much. Additionally, for China and South Enterprise Program, CBS sored by the Japan Business Association at Korea (as well as Taiwan), Japan’s wartime Moderated by David E. Weinstein CBS. behavior is one of the few issues that unite them. Dr. Ryu also described the make-up of In light of rising tensions between Japan and nationalist beliefs by gender, age, and political China, Professor Fisman presented his find- party. This event was organized by WEAI and ings from two studies, conducted in 2005 cosponsored by the ASC. and 2010, about the extent to which these conflicts spill over from politics to economics. By measuring stock valuations, he found that there were significant effects in both trade

44 | CJEB Annual Report 2013–2014 resources

Faculty Advisory Committee

CJEB’s Faculty Advisory Committee was Charles W. Calomiris Sheena S. Iyengar formed to provide insight and guidance to Henry Kaufman Professor of Financial S. T. Lee Professor of Business CJEB governance, research, teaching, and Institutions Columbia Business School outreach activities. The diversity of intellectual Columbia Business School Merit E. Janow focus among the committee members is Fangruo Chen Dean central to furthering CJEB’s mission to serve MUTB Professor of International Business Professor of Professional Practice, as a comprehensive forum for collaboration Columbia Business School International Economic Law and International and reflection on Japan, the United States, Affairs and the global economy. In addition to Hugh Wouter H. Dessein School of International and Public Affairs, Patrick and David E. Weinstein, the members Eli Ginzberg Professor of Finance and Columbia University of the committee are: Economics Columbia Business School Bruce Kogut Sanford C. Bernstein & Co. Professor of Robert J. Hodrick Leadership and Ethics Nomura Professor of International Finance Columbia Business School Columbia Business School

CJEB Annual Report 2013–2014 | 45 Visiting Fellows

Each year, a small number of professional and academic fellows are selected to spend a period of time in residence at Columbia Business School. CJEB Visiting Fellows receive a unique research and networking experience at one of the world’s most prestigious business schools in a top- ranking university within dynamic New York Tomohiro Hirano Michito Hirota Hiroshi Ishijima Toshie Ishizu City. The University Yokohama National Chuo University Meiji University of Tokyo University September 2013– June 2013– August 2013– September 2013– August 2014 September 2013 September 2013 September 2014

Yoko Kagami Masahiro Kan Naoki Katayama Rima Kikuchi Tomokazu Kubo Steven Nam Komazawa Ministry of Finance September 2013– Minebea Co., Ltd. Chuo University February 2014– University July 2013–June November 2013 August 2013–May September 2013– April 2014 April 2013–March 2014 2014 August 2015 2014

Futoshi Oguri Ryo Saiki Haruhiko Takahashi Keisuke Takeguchi Katsumi Tanabe Mizuho Tanaka Nikkei Inc. Tokai Tokyo Tokyo Metropolitan Hosei University Keio University Hokulea Limited September 2013– Securities Co., Ltd. University April 2014–March April 2014–March September 2013– August 2014 September 2013– April 2013–March 2015 2015 February 2014 August 2014 2014

Masaya Tazaki Masazumi Kengo Yasui Taiyo Yoshimi Kazushige Kamiyama Naoki Matsuda Mitsui Sumitomo Wakatabe Ritsumeikan Nanzan University Bank of Japan Ministry of Finance Insurance Co., Ltd. Waseda University University September 2012– June 2013– September 2013– July 2013–June July 2013– September 2013– February 2014 June 2014 July 2015 2014 September 2013 September 2014 Joint Fellows with the Weatherhead East Asian Institute (WEAI) of Columbia University

46 | CJEB Annual Report 2013–2014 2014 CJEB Visiting Fellow Reunion Reception

Since CJEB’s inception in 1986, it has hosted nearly 200 Visiting Fellows from the academic, public, and private sectors. In order to celebrate this successful program, CJEB hosted its first formal Visiting Fellows reunion reception in Tokyo on May 14, 2014. More than 80 current and former Visiting Fellows attended this event, enjoying an evening of reconnecting and networking with their peers.

Hugh Patrick welcomes current and former visiting fellows at CJEB Visiting Fellows Reunion Reception.

2014 Annual Visiting Fellow Business Field Trip

For their annual field trip, CJEB’s Visiting Fellows toured the NASDAQ MarketSite in Times Square in New York City on March 13, 2014. They had a private session with one of the senior NASDAQ executives and witnessed the closing bell ceremony.

CJEB Visiting Fellows at NASDAQ MarketSite

CJEB Annual Report 2013–2014 | 47 Research Associates

CJEB benefits from ongoing collaboration Robert Dekle Takatoshi Ito with Japan specialists from institutions other Professor of Economics Professor than Columbia, principally within the United Department of Economics National Graduate Institute for Public University of Southern California Studies States. Research associates are invited Project Professor to communicate their research through Peter Drysdale Graduate School of Public Policy participation in Center projects and public Emeritus Professor of Economics The University of Tokyo programs and by contributing to the Center’s Head, East Asia Bureau of Economic Working Paper Series. Research and East Asia Forum Anil Kashyap Crawford School of Public Policy Edward Eagle Brown Professor of Christina Ahmadjian The Australian National University Economics and Finance Professor, Graduate School of Commerce The University of Chicago Booth School of and Management Robert Eberhart Business Hitotsubashi University Assistant Professor Leavey School of Business Takao Kato Masahiko Aoki Santa Clara University W. S. Schupf Professor of Economics and Henri and Tomoye Takahashi Professor Research Fellow Far Eastern Studies Emeritus of Japanese Studies Stanford Technology Venture Program Department of Economics Department of Economics Colgate University Senior Fellow, Stanford Institute of David Flath Economic Policy Research Professor Kenneth N. Kuttner Senior Fellow, Freeman Spogli Institute of Department of Economics Robert F. White Class of 1952 Professor International Studies Ritsumeikan University of Economics Stanford University Professor Emeritus of Economics Department of Economics Poole College of Management Williams College Shiro Armstrong North Carolina State University Codirector Patricia H. Kuwayama Australia-Japan Research Centre Koichi Hamada Economist Crawford School of Public Policy Tuntex Professor Emeritus of Economics Professional Fellow Editor, East Asia Forum Department of Economics Center on Japanese Economy and The Australian National University Yale University Business Special Advisor to the Cabinet Columbia Business School Schon L. Beechler The Cabinet of Japan Former Vice President Senior Affiliate Professor of JPMorgan Chase Bank, N.A. Organisational Behaviour Yasushi Hamao INSEAD Associate Professor of Finance and Edward Lincoln Business Economics Adjunct Professor of Economics Lee G. Branstetter Marshall School of Business Department of Economics Associate Professor of Economics and University of Southern California Columbia University Public Policy Professorial Lecturer Heinz School of Public Policy and Masanori Hashimoto George Washington University Management Professor of Economics Emeritus Department of Social and Decision Department of Economics Robert A. Myers Sciences The Ohio State University Senior Vice President Carnegie Mellon University Fairfield Resources International, Inc. Takeo Hoshi Former Director of Technology Jenny Corbett Henri and Tomoye Takahashi Senior Fellow IBM Japan Pro Vice-Chancellor (Research and and Director Research Training) Shorenstein Asia-Pacific Research Center Terutomo Ozawa Professor of Economics Professor of Finance (by courtesy) Professor Emeritus of Economics Executive Director, Australia-Japan Stanford Graduate School of Business Department of Economics Research Centre, Crawford School of Stanford University Colorado State University Public Policy The Australian National University

48 | CJEB Annual Report 2013–2014 Professional Fellows

Joe Peek A professional fellow appointment at the and Bankers Trust Company before joining Vice President and Economist Center recognizes former government offi- Chase in 1992. Mr. Fallon holds a BA from Research Department cials and business leaders who have had Ohio University and an MBA from Harvard Federal Reserve Bank of Boston distinguished careers in economics-related Business School. Following his undergraduate fields. This position facilitates his or her ongo- studies, he served in the U.S. Peace Corps, Adam S. Posen ing involvement with CJEB and its activities. including three years as a volunteer mathe- President matics teacher at Chanel College in Western Peterson Institute for International Robert E. Fallon is Economics Samoa. Mr. Fallon is chairman of the Council president and CEO of on International Educational Exchange, Inc., Phosplatin Therapeutics William V. Rapp a member of the Asia Society and the Council LLC, a company he Henry J. Leir Professor of International on Foreign Relations, and a professional fellow helped found that is Trade and Business of CJEB. He is a former director of the Japan School of Management developing a novel class Society and of the Korea Society, as well Director of anticancer chemo- as trustee emeritus of the Ohio University Leir Center for Financial Bubble Research therapy drugs. From New Jersey Institute of Technology Foundation. 2008 to 2011, Mr. Fallon was adjunct professor at Columbia Patricia Hagan Frances McCall Rosenbluth Damon Wells Professor of Political Science Business School, where he taught interna- Kuw­ayama has Department of Political Science tional banking. Prior to his Columbia appoint- been studying the Yale University ment, Mr. Fallon was chairman of Korea Japanese economy Exchange Bank, a publicly listed $80 billion since she was a Ulrike Schaede institution that is Korea’s leading international graduate student Professor of Japanese Business bank. After taking over as chairman and CEO in the 1960s, com- Executive Director of the Center for in January 2004, he led a successful reorga- pleting a doctoral Emerging and Pacific Economies nization and restructuring that restored the dissertation on School of International Relations and Pacific Studies bank’s capital strength and achieved record effective tariff protection of Japanese indus- University of California, San Diego profitability. He is also the first non-Korean to try in 1970. She became a professional fel- chair a public company in Korea. Previously, low of CJEB in 2009, after retiring as a Michael J. Smitka Mr. Fallon was an international banker based vice president and international economist Professor of Economics in Tokyo with JPMorgan Chase, where he at JPMorgan Chase in New York. Previously, Williams School of Commerce was Asia-Pacific division head for the Chase she was JPMorgan’s chief economist in Tokyo Washington and Lee University Manhattan Bank and a member of the and earlier with Chemical Bank in Tokyo. From Tsutomu Watanabe Chase Manhattan Corporation Management 1970 to 1986, Dr. Kuwayama was with the Professor Committee. He was responsible, as senior Federal Reserve Bank of New York, serving Graduate School of Economics executive in Asia, for Chase’s activities in in various research and management posts The University of Tokyo the Pacific Rim located across 13 different in the International Research, Statistics, and countries. Mr. Fallon has lived in Asia for Foreign Exchange Departments. She has been Eleanor Westney 31 years and enjoys a myriad of contacts a visiting scholar at the Bank of Japan Institute Scotiabank Professor of International across a wide spectrum of government, cor- for Monetary and Economic Research and vis- Business Schulich School of Business, York porate and financial institutions in the region. iting consultant at the Bank for International University He travels widely and speaks often on Asian Settlements in Basel and taught as a visiting economic and business affairs. He started professor at Keio University in Tokyo and his banking career with Citibank in Hong at Kobe Gakuin University. Dr. Kuwayama Kong in 1975 and later worked in investment has written widely about Japanese macro- banking and management positions in Tokyo. economic policy, balance of payments issues, Subsequently, he assumed Asia regional and financial institutions, including the postal responsibility with Drexel Burnham Lambert savings system. She has coauthored the book

CJEB Annual Report 2013–2014 | 49 International Advisory Board

titled Memoir of a Trustbuster: A Lifelong Adventure with Japan, with Eleanor M. Hadley. She earned her BA and PhD degrees in eco- nomics at Harvard University and the City University of New York, respectively, and did her Japanese language studies at Columbia University. She participates actively in the CJEB Visiting Fellow Seminars.

Shijuro Ogata was a strong supporter and good friend of CJEB from its incep- tion. He was the first professional fellow and served contin- uously as such until his unfortunate passing on April 14, 2014. He was the former deputy governor of the Japan Development Bank and the former dep- uty governor for international relations of the Bank of Japan. He served as the nonexecutive Haruhiko Kuroda and May 15 Tokyo conference audience director of Barclays Bank, Fuji Xerox Co., Ltd., and Horiba Ltd.; member of the International Advisory Council of JPMorgan Chase; advi- The International Advisory Board provides Charles D. Lake II sor to the Imperial Hotel, Tokyo; member of overall guidance for CJEB. Members are dis- Chairman, Representative in Japan, Aflac the Advisory Board of the New Perspective tinguished leaders in the fields of Japan-U.S. Japan; President, Aflac International Fund; vice president of the America-Japan economic, business, and political relations. Society, Inc.; and member of the Asia-Pacific Yuzaburo Mogi ’61 Advisory Committee of the New York Stock Honorary CEO and Chairman of the Board, Exchange, Inc. Mr. Ogata received his BA Shinji Fukukawa Kikkoman Corporation Former Vice Minister, Japanese Ministry of from The University of Tokyo and his MA from Kazuhiro Takeuchi International Trade and Industry the Fletcher School of Law and Diplomacy President and CEO, Sumitomo Corporation of Senior Advisor, Global Industrial and Social at Tufts University. CJEB will always remain Americas grateful for Mr. Ogata’s guidance and contri- Progress Research Institute butions to the Center. Chairman, Board of Trustees, Toyo University Joseph G. Tompkins ’67 President, Saga Investment Co., Inc. Shijuro Ogata is survived by his wife, Sadako Yotaro Kobayashi Ogata, who is also a distinguished leader. Former Chairman and CEO, Fuji Xerox Co., Among other positions she served as the UN Ltd. High Commissioner for Refugees, chairman of the UNICEF Executive Board, president of the Japan International Cooperation Agency, and envoy extraordinary and minister pleni- potentiary at the Permanent Mission of Japan to the UN. Prior to that, she had a prominent academic career at Sophia University.

50 | CJEB Annual Report 2013–2014 promoting exchange of ideas

CJEB in the News

CJEB’s academic directors are regularly 2% Cost of Living Target Is Adequate, Must Intensify Supply Power for Growth, featured in the media, providing their Utilizing Women in the Work Force and Including Labor Force. Now Is the Time insights and expertise in Japan-related TPP Implementation for Discussion matters. Highlights for this year include: Toyo Keizai, April 12, 2014 Reuters, May 15, 2014

Hugh Patrick From the Economic Forum: The Japanese Overcoming Deflation Demonstrates Market Liberalization through the TPP Economy after the Consumption Tax Difficulties in Sustaining Supply Power, Nikkei Shimbun, July 3, 2013 Increase Concerns Related to Price Increases Nikkei Shimbun, April 27, 2014 Remain Global Voice on the Next Stage of Reuters, May 16, 2014 Abenomics May 15, 2014 Global Debate WISDOM, NHK BS1, July Media Coverage from CJEB Tokyo Toward Overcoming Deflation (Transcript 21, 2013 Conference of Governor Kuroda’s Speech) With Stronger GDP, Yen Remains Bank of Japan, May 15, 2014 “On Point with Tom Ashbrook”: The New High and Stocks Low, No Prospects Politics and Economy of Japan on Japanese Economy after July– National Public Radio, July 24, 2013 September Some of the titles have been translated from Asahi Shimbun, May 15, 2014 Japanese to English. October’s Decision Will Determine the Outcome of Abenomics Nikkei 225 Falls Due to Expectations G2 Magazine 14, September 26, 2013 that Easing Will Decrease Based on Kuroda’s Statement What Will Japan Do? Preparations for the Asahi Shimbun, May 15, 2014 2020 Tokyo Olympics NHK Special, NHK, January 1, 2014 Treasuries Fall First Time in Four Days as Rally Seen Overdone The People of Japan! Assert Yourselves Bloomberg, May 16, 2014 More into the Outside World! Wedge Magazine, March 6, 2014 Bank of Japan’s Kuroda: “Many Ways” to Achieve Additional Easing, Japanese From the Economic Forum: The Japanese Economy’s Supply Power Is Decreasing Economy after the Consumption Tax Bloomberg, May 15, 2014 Increase Nikkei Shimbun, April 27, 2014 Temporary Yen Appreciation Due to a Better than Expected GDP, Dollar Slips to 101 Yen David E. Weinstein Newsweek Japan, May 15, 2014 CPI: Noise Pollution at Low Altitudes The Wall Street Journal, October 31, 2013 BOJ Kuroda: Firms Smoothly Passing on Tax Hike Costs Don’t Be Overconfident When It Comes to Reuters, May 15, 2014 the Consumer Cost of Living Nikkei Shimbun, December 31, 2013 BOJ’s Kuroda: Correction in Yen Strength Could Slow Shift in Production Overseas Interview: This Year Was a Success, but Reuters, May 15, 2014 the Risk Is a Contraction in Consumption Nikkei Business, March 24, 2014

CJEB Annual Report 2013–2014 | 51 Enhancing the MBA Experience

Chazen International Study Tour participants

CJEB contributes to the international dimen- with CJEB director Professor Hugh Patrick geisha performance. Students spent a night sion of the Columbia Business School (CBS) and director for administration Ryoko Ogino in a traditional Japanese inn with hot springs MBA student experience. One of its main col- on possible company visits and on the overall in Aichi. In Tokyo, they attended a CBS alumni laborative partners is the student-led Japan current state of the Japanese economy. reception, where they listened to a presenta- Business Association (JBA). CJEB meets with tion about the Japanese startup environment The 2014 Chazen International Study Tour JBA officers regularly to exchange ideas on presented by alumnus Ken Isono. to Japan took place from March 17 to March ways to showcase Japanese economy and 23, with about 40 MBA student participants The CJEB Welcome Reception was held on business related issues within CBS. visiting Tokyo, Kyoto, and Aichi. Joined by September 10, 2013, to welcome the CBS As an annual initiative, CJEB and JBA work CBS professor Yash Kanoria, the students community and give CJEB Visiting Fellows, together to organize the Chazen International met with representatives from Japanese cor- faculty, and staff an opportunity to network Study Tour to Japan. Led by the Jerome A. porations and immersed themselves in various with their counterparts in other departments. Chazen Institute of International Business, Japanese cultural sights and experiences. The In addition, JBA cosponsored CJEB’s the Japan Study Tour sends a group of stu- students toured a Toyota manufacturing plant, standing-room-only lunchtime seminar, “Do dents for a weeklong trip to Japan, including visited a traditional sake brewing factory You Washlet? TOTO’s Challenge in Breaking cultural excursions and visits to Japanese (Gekkeikan), and listened to presentations at into Mainstream America,” on April 17, 2014 corporations. Since the tour’s inauguration Fast Retailing (UNIQLO), Rakuten, and ANA. (see p. 44). in 1989, CJEB has helped fund the program In Kyoto, they visited historical sites, includ- and provide input on the agenda. Prior to each ing the Golden Pavilion, Kiyomizu Temple, year’s trip, the student trip organizers consult and Sanju Sangendo, as well as a traditional

52 | CJEB Annual Report 2013–2014 Enhancing the Columbia Experience

The Columbia University community pro- vides many resources for students, faculty, and alumni interested in learning more about Japan. CJEB is committed to supporting orga- nizations across campus engaged in Japan- related activities, such as the Weatherhead East Asian Institute, the Donald Keene Center, the APEC Study Center, the Consortium for Japan Relief (CJR), the East Asian Languages and Cultures (EALAC) Department, and the School of International and Public Affairs (SIPA), among others.

This year, CJEB continues to support EALAC’s new language course, “Business Japanese,” led by lecturer in Japanese Kyoko Loetscher. Ms. Loetscher developed the course for inter- JASSA Japan Study Tour participants mediate level students to acquire advanced Japanese proficiency with a focus on using Japanese in business settings. Taught entirely the restoration of the Japanese economy. Secretary to Prime Minister Shinzo Abe, and in Japanese, the course emphasized effec- This included “Abenomics and the Japanese Michio Kitahara from the Bank of Japan’s tive communication in a globalized society, Market’s Potential,” featuring Nobuyuki Saji, Monetary Affairs Department. Students also Japanese business culture, and communica- chief economist of Mitsubishi UFJ Morgan visited the Japan Railway Shinkansen Control tion skills necessary to work for Japanese Stanley Securities, on October 30, 2013 Center, where they learned about the oper- companies. Through use of newspaper articles, (see p. 38). Additionally, CJEB was an out- ations behind the famous high-speed trains. TV footage from NHK, and business texts, stu- reach partner for JASSA’s event “Challenges Participants interacted with students from dents were taught to read reports, write busi- and Perspectives for Japan: Is Reconciliation the University of Tokyo’s Graduate School of ness letters, and give presentations on busi- Possible among Neighbors?,” featuring Yukio Public Policy, one of SIPA’s partner schools, ness-related topics. The course culminated Okamoto, former special advisor to two prime and with SIPA alumni in Tokyo. Participants in the students creating a project based on ministers of Japan and 2012–2013 Robert E. also discussed various issues such as Japan’s societal and political issues related to Japan. Wilhelm Fellow at MIT (see p. 40 ). role in the international community. Finally, for the first time since JASSA began this JASSA organizes an annual student-led trip CJEB also provided support for the CJR’s annual trip eight years ago, the participating to Japan that is partially supported by CJEB initiatives and activities, such as this year’s students visited the Tohoku region to observe funds, similar to the Chazen International March 9, 2014, symposium, “Fukushima the reconstruction and recovery efforts since Study Tour to Japan (see p. 52). This year, Three Years Later: Staying Behind Moving the 2011 earthquake and tsunami disaster. 29 students from the United States, China, Forward,” which highlighted the creative They spoke with the founders of social entre- Mexico, Brazil, Canada, India, Italy, Norway, responses and the social dialogue that arose preneurship nonprofit organizations Asuiku Turkey, and Ecuador participated in the trip as a result of the recent triple disaster (see and World in Asia, as well as the vice mayor of and went to Kyoto, Tokyo, and the Tohoku pp. 36–37). Rikuzentakata City and its global public rela- region. The students started in Kyoto, where tions director. They also heard from leaders of CJEB supports Columbia University’s Japan they participated in cultural activities such small businesses such as a fishcake factory in Study Student Association (JASSA) ini- as a Buddhist liturgy reading at the Nishi- Onagawa, an old established soy sauce brew- tiatives throughout the year. CJEB-funded Honganji Temple and a traditional tea cere- ery, a local start-up creating custom-made JASSA activities included “‘Japan’s Second mony, followed by visits to the Golden Pavilion, sweaters, and the editorial chief of a regional Chance’ Series: Economic Roundtable,” a dis- Kiyomizu Temple, and the Gion District. In newspaper. cussion series featuring various Japanese Tokyo, the students met and spoke with business professionals and focusing on Yasuhisa Shiozaki, former Chief Cabinet

CJEB Annual Report 2013–2014 | 53 Visits from Japan to Fellowship and Scholarship Columbia Programs

CJEB provides select fellowships for Grant in summer 2013 to Sakai Ando in the Columbia University students who demon- Economics Department. In summer 2014, strate outstanding academic ability and CJEB awarded two Graduate Research a specific interest in Japan and the Asia- Grants to Sungyong Chang of CBS and to Pacific economies. These fellowships Misaki Matsumura and Yoon Joo Jo in the support research and participation in Economics Department. academic programs related to Japanese economic and business fields. More infor- The Sumitomo Fellowship Program was mation about all of these opportunities is established by the Center as part of an available at www.gsb.columbia.edu/cjeb/ initial operating grant from Sumitomo about/fellowships. Corporation of Americas. The program provides support to recent PhDs and PhD The CJEB Doctoral Fellowship was estab- candidates specializing in some aspect of lished in 2013 to support PhD students U.S.-Japan economic and business rela- at CBS and/or Columbia’s Department tions. Fellowship recipients typically spend of Economics who plan to develop Japan a period in residence at the Center to expertise, culminating in dissertations engage in their own research and partici- focused primarily on Japan. The Center pate in CJEB programs. awarded two CJEB Doctoral Fellowships in fall 2013: one to Guannan (Jackson) Lu The Mitsubishi UFJ Trust Scholarship in the Management Division of CBS, and Foundation provides one Columbia JASSA Japan Study Tour one to Misaki Matsumura in the Economics University student each year with tuition Department. CJEB Doctoral Research and living expenses for a program of either undergraduate or graduate study in Japan. Groups of Japanese undergraduate Grants and Summer Stipends are also CJEB conducts a University-wide compe- and graduate students often visit CJEB available to PhD students at CBS or the tition on behalf of the Foundation to nom- during their tours of the East Coast. In Department of Economics who wish to pur- inate a student. The scholarship recipient 2013–2014, five groups from Bunkyo sue Japan-related research projects or lan- for 2013–2014 was Nicolle A. Konai, MPA University, Chuo University, Komazawa guage training programs. The Center was candidate at SIPA. University, Meiji University, and Wako pleased to award one Graduate Research University came to Columbia University. Each group met with Professor Patrick, who made a brief introduction and fielded questions. Discussion topics included Abenomics, continuities and changes in Japanese politics, TPP negotiations, immigration, women’s workplace chal- lenges, challenges presented by Japan’s aging population, and attitudes toward foreign study and employment.

54 | CJEB Annual Report 2013–2014 Library and Data Resources

Columbia University is home to one of the members and students conducting relevant Other data resources: largest collections of Japanese- and English- research. • CJEB Research Associate and Professor at language materials in the United States. CJEB’s database includes: The University of Tokyo Tsutomu Watanabe CJEB evaluates Columbia University library (along with Kota Watanabe of Chuo University resources and commits funding to pro- • Time-series and cross-section data on finan- and The University of Tokyo) launched the cure new materials on Japan and the Asia- cial markets, institutions, and the macroeco- UTokyo Daily Price Index project in May Pacific economies. CJEB also maintains nomy from Nikkei NEEDS Financial QUEST 2013, which measures and publishes the a small working collection of materials on 2.0 and the Development Bank of Japan’s consumer inflation rate on a daily basis. the Japanese and Asia-Pacific economies, Industrial Financial Database including statistical resources, academic journals, and periodicals. • An online news and data retrieval sys- tem that provides essential corporate and In addition, the Center continues to develop economic data as well as leading newspa- its extensive database on the Japanese per and journal articles on Japanese and economy, with an emphasis on financial other Asia-Pacific economies from Nikkei markets, under the direction of Professor Telecom, which is accessible via Columbia David E. Weinstein. The database is a com- University Libraries (CLIO). pilation of statistical resources for faculty

CJEB Annual Report 2013–2014 | 55 Discussion Groups

Japan Economic Seminar Graduate School of Economics, Graduate School fall and spring for dinner and discussion. Topics of Public Policy, University of Tokyo (coauthor: of discussion for 2013–14 included the pros- The Japan Economic Seminar (JES) was Kota Watanabe, Professor, Chuo University) pects for Abenomics and the implementation founded in 1966 by Professors James Discussants: Jessie Handbury, Assistant of its “third arrow” as part of Japan’s growth Nakamura of Columbia University, Hugh Professor of Real Estate, Wharton School of strategy, demographic concerns related to Patrick (then at Yale University), and Henry Business; Naohito Abe, Professor, Institute of Japan, Japanese and American immigration Rosovsky of Harvard University. With a mem- Economic Research, Hitotsubashi University and labor policies, U.S. fiscal and budgetary bership of up to one hundred, it originally was policy, U.S. economic recovery, and the Trans- an interuniversity forum for faculty, other pro- Monetary Policy Discussion Pacific Partnership agreement. fessionals, and advanced graduate students Group to discuss ongoing research in preliminary form by specialists on the Japanese economy. This discussion group includes specialists on JES now meets once a year, sponsored by the Japanese financial system and meets CJEB, and is held at Columbia University in several times a year. The participants are the early/mid-spring semester with the leader- Hugh Patrick, David E. Weinstein, and Alicia ship of Takatoshi Ito, professor at the National Ogawa (CJEB); Michinobu Kishi and Takeshi Graduate Institute for Public Studies. Special Kato (Bank of Japan); Edward Lincoln (George arrangements have been made to include Washington University); Kim Schoenholtz economists from Japan as paper authors and (NYU Stern); Jennifer Dwyer (Hunter College, discussants. CUNY); Patricia Kuwayama (CJEB profes- sional fellow); Richard Katz (The Oriental This year, the JES was held on February 28, Economist Report); and Frances Rosenbluth 2014, and was moderated by Professors Ito (Yale University). and Weinstein. The following papers were discussed: U.S.-Japan Discussion “Good Jobs, Bad Jobs, and the Great Group Recession: Lessons from Japan’s Lost Decade” Shortly before CJEB was founded, the then CEO of Sumitomo Corporation of Americas Presenters: Ryo Kambayashi, Associate and Professor Patrick took the initiative in Professor, Institute of Economic Research, organizing, on a private, individual basis, an Hitotsubashi University; Takao Kato, W. S. evening discussion group of senior Japanese Schupf Professor of Economics and Far and American businessmen and profession- Eastern Studies, Department of Economics, als living in the New York area. The group Colgate University continues to convene to discuss frankly and Discussants: Hiroaki Miyamoto, Professor, informally—and off the record—issues and Graduate School of International Relations, prospects in U.S.-Japan business, economic International University of Japan and the and political relations. Kazuhiro Takeuchi, University of Tokyo; Aysegul Sahin, Assistant the current CEO of Sumitomo Corporation Vice President, Macroeconomic and Monetary of Americas, and Hugh Patrick are the co- Studies Function, Federal Reserve Bank of organizers of this group. The members come New York from the business and financial communities, together with several specialists on Japan Estimating Daily Inflation Using Scanner from the Columbia University faculty. The Data: A Progress Report group avoids identification with any particular Presenter: Tsutomu Watanabe, Professor, companies or groups and meets twice in the

56 | CJEB Annual Report 2013–2014 Financial Support

Columbia University and Columbia Business the Marine and Fire Insurance Association, Major Corporate Sponsors School (CBS) give basic support for the Center the Federation of Bankers Association, ($25,000+ annually) by providing faculty salaries and office space, the Security Dealers Association, the Life Daiwa Capital Markets America Inc. library and administrative support, and other Insurance Association, and Mitsubishi UFJ Kikkoman Corporation essential services. However, the Center relies Trust and Banking Corporation during the first Research Institute of Public Management, Ltd. * on external sources of financial support from years of the Center’s establishment at CBS. Ricoh Co., Ltd. foundations, corporations, and individuals for SMBC The Center was delighted to hold the Special its programs and research activities. Income Takata Corporation Luncheon for Corporate Sponsors to thank is derived from the Center’s endowment, Tsuchiya Co., Ltd. our sponsors for their continued support on operating and project grants, and, especially, Friday, May 16, 2014, at the Hotel New Otani from the Corporate Sponsorship Program, Corporate Sponsors Tokyo. which was established in 1995. Academic ($10,000+ annually) independence has not been an issue, as there Aflac Japan are no special restrictions attached to any of Corporate Sponsorship Fuji Xerox Co., Ltd. these gifts. Program Imuta and Associates ITO Corporation The Sponsorship Program has been instru- Sponsors for the year 2013–2014 are as J.C.C. Fund of the Japanese Chamber of mental in expanding the Center’s activities follows: Commerce and Industry of New York, Inc. and guaranteeing their long-term financial Minebea Co., Ltd. * support. The companies listed below give Lead Corporate Sponsor Mitsubishi Corporation (Americas) to the Center on an annual basis. Sumitomo ($100,000+ annually) Mitsui Sumitomo Insurance Co., Ltd. * Corporation of Americas made an initial Sumitomo Corporation of Americas Mitsui USA Foundation significant contribution that enabled the Mori Building Co., Ltd. Center to be established in 1986 and has Senior Corporate Sponsors Nikkei Inc. * continued to be a major Center donor. The ($50,000+ annually) Nomura America Foundation Center also greatly appreciates and benefits Advantage Partners, LLP Saga Investment Co., Inc. from the income derived from the generous Mitsubishi UFJ Trust and Banking Corporation Sumitomo Mitsui Trust Bank, Ltd. endowments funded by Fuji Xerox Co., Ltd., Tokai Tokyo Securities Co., Ltd.* Toho Technology Corporation Sanken Industrial Policy Research Institute, Yaskawa Electric Corporation

Individual Sponsor ($10,000+ annually) Robert Alan Feldman

Friends of the Center (up to $9,999 annually) Miyoko Davey Hiroko and Satoru Murase Tsunao Nakamura Hugh Patrick Sadao Taura

* Regularly sends Visiting Fellows

CJEB Annual Report 2013–2014 | 57 58 | CJEB Annual Report 2013–2014 CJEB Annual Report 2013–2014 | 59 60 | CJEB Annual Report 2013–2014 CJEB Annual Report 2013–2014 | 61 62 | CJEB Annual Report 2013–2014 CJEB Annual Report 2013–2014 | 63 64 | CJEB Annual Report 2013–2014 CJEB Annual Report 2013–2014 | 65 66 | CJEB Annual Report 2013–2014 CJEB Annual Report 2013–2014 | 67 68 | CJEB Annual Report 2013–2014 CJEB Annual Report 2013–2014 | 69 70 | CJEB Annual Report 2013–2014 CJEB Annual Report 2013–2014 | 71 Design/Production

Columbia Creative Office of Communications and Public Affairs

Editor:

Ryoko Ogino

Assistant Editors:

Caroline Hasegawa

Sonya Kuki

Emiko Mizumura

Kahori Takahashi

Andy Wanning

Contributor:

Koji Hirao

Photography:

Eileen Barroso

Michael Dames

Michael Di Vito

Hideo Hoshino

Alan Klein

Andy Wanning C JA ON ENTER Center on P A NE S E C ONO

MY A MY Japanese N D B U SI NE SS Economy and Business A NNU 2M9 Uris Hall, 3022 Broadway Annual report 2013–2014 A L

New York, NY 10027 REPORT Phone: 212-854-3976 Fax: 212-678-6958 2013-2014 Web: www.gsb.columbia.edu/cjeb

CJEB Representative Office in Japan c/o Terumi Ota 1-19-18-1003 Shibuya Shibuya-ku, Tokyo 150-0002 Fax: 03-5467-6012