Masahiko Aoki Memorial Conference and Celebration of Life

December 4-5, 2015

Bechtel Conference Center Encina Hall 616 Serra Street Stanford University Dear friends and colleagues of Masahiko Aoki:

Thank you for joining us in celebrating Masa's life today.

April 27, 2015 -- the day after Masa was admitted to the hospital -- was our 40th wedding anniversary. Masa traveled a lot during our 40 years together, and after our daughters left for college I was able to join him on many of his travels. We visited many countries together and I got a chance to get to know his friends and colleagues, many of you who have traveled from all over the world to be with us today. Masa loved interesting conversation, drinking good wine, and eating delicious meals with good company. I will cherish these memories with you as a gift from Masa. I hope to continue the friendship that each of you had offered to us over the years.

Thank you again,

Reiko Aoki Masahiko Aoki Memorial Conference on Economics December 4, 2015

Conference Program: Morning Sessions

8:30am - 8:50am Breakfast & Registration

8:50am - 9:00am Welcome Remarks Takeo Hoshi (Stanford University)

9:00am - 9:30am Kenneth Arrow (Stanford University), “Role of Organizational Structure in the Economy”

9:30am - 10:00am Paul Milgrom (Stanford University), “Designing the US Incentive Auction”

10:00am - 10:30am Break

10:30am - 11:00am Koichi Hamada (Yale University), “Masahiko Aoki: A Social Scientist”

11:00am - 11:30am Kotaro Suzumura (Hitotsubashi University) “Masahiko Aoki (1938-2015): Recollections of his Pilgrimage and Legacy in Japan”

11:30am - 12:00pm Yingyi Qian (Tsinghua University), “Masahiko Aoki and China”

12:00pm - 1:15pm Lunch Masahiko Aoki Memorial Conference on Economics December 4, 2015

Conference Program: Afternoon Sessions

1:15pm - 1:45pm Jiahua Che (Chinese University of Hong Kong) presenting Masahiko Aoki’s “Three-person game of institutional resilience vc transition: A model and China-Japan comparative history”

1:45pm - 2:15pm Miguel Angel Garcia Cestona (Universitat Au tonoma de Barcelona), “Corporate Governance and Employee Participation: some lessons from Mondragon”

2:15pm - 2:45pm Herbert Gintis (Santa Fe Institute), “General Social Equilibrium and its Dynamics”

2:45pm - 3:15pm Break

3:15pm - 3:45pm Dale Jorgenson (Harvard University), “A Half Century of Trans-Pacific Competition”

3:45pm - 4:15pm Avner Greif (Stanford University), “Compara tive Institutional Analysis: China and Europe Compared”

4:15pm - 4:45pm Francis Fukuyama (Stanford University), “Asian Kinship, Industrial Structure, and Trust in Government”

4:45pm-5:00pm Closing Remarks Takeo Hoshi (Stanford University)

5:00pm - 6:00pm Cocktail Reception Masahiko Aoki Celebration of Life December 5, 2015

Masahiko Aoki April 1, 1938 - July 15, 2015

Memorial Program

10:30am Registration

11:00am Welcome Remarks Takeo Hoshi (Stanford University)

11:03 am Eulogy Kyoko and Maki Aoki

11:10am Tributes from family, friends, and colleagues

11: 45am Memorial Video

11:50 am Closing Remarks Andrew Simmons

11:55 pm Lunch Reception In 2015, the Nihon Keizai Shimbun (Morning Edition) chose Masahiko’s Op-Ed as their first of the new year. The following is an English translation of that article. 2015 — At the Starting Point of Regrowth, Make the best use of people to boost productivity Masahiko Aoki, Stamford University Emeritus January 5th, 2015 — the Nihon Keizai Shimbun (Morning Edition) This year marks the Galor of Brown University seventieth anniversary of the and his collaborators suggest end of the Second World War. a “unified growth theory” Those who lived through approach that combines the “success” of the post-war economic variables, a variety period often consider the past of population-related variables 25 years of sluggish economic and institutional variables, growth as the “Lost Decades”, in order to understand this while younger generations new transitory phase towards who did not experience the economic growth we are rapid growth era do not share currently in. this notion. Simon Kuznets, winner What is the historic of the third Nobel Prize for task that Japan now Economics, tried to explain faces? Is it bringing about the transition of employment economic revival by the from agriculture to the Abe administration’s “three manufacturing and service arrows”? Is it the liquidation industries as the “quantitative of the post-war governmental aspect of economic growth” by regime and the expression analyzing European economic of Japan’s geopolitical data spanning the 19th and the presence? Or is it creating 20th centuries. Let us call this new institutions through the the “Kuznets effect” of growth. active participation of the new Over the past 70 years generation? in East Asia, there have been As we stand at a historic a succession of rapid growth turning point, we cannot periods in the per capita gross just focus on the fluctuations domestic product: first in Japan of short-term economic (from the 50s and 60s), next in variables. Professor Oded South Korea (from the 70s to the 80s), and then in China employed in the agricultural (from the 80s to the present). sector dropped to less than 20 In each of these periods, there percent, bringing the phase of have been disparities in the rapid growth to an end. China’s labor productivity per capita coastal provinces have now between the agricultural and reached this 20% threshold. manufacturing industries. Following the end of Japan and China showed a five- the Kuznets process, increases fold disparity, while Korea was in per capita GDP rely on slightly more than three-fold. a rise in per capita labor This rapid growth across all productivity in secondary and three nations is not surprising tertiary industries. There are given this rapid shift in labor two primary factors that enable over such a short time period. this. First is an increase in The second cause capital equipment per worker of this rapid economic (known by economists as a growth, which occurred in capital labor ratio), and second combination with the Kuznets is institutional innovation in process, was the wave of economic organizations and “baby boomers” born after the accumulation of human World War II in Japan, after capital (known as total factor the armistice that ended the productivity, or TFP). Korean War in South Korea, China’s official statistics and in China after the chaos do not accurately reflect the and mass starvation produced numbers of “migrant” workers by Mao Zedong’s “Great Leap from rural areas working in Forward” campaign. These cities, and a certain amount of baby boomers engaged in the recent rise in productivity productive activity, resulting is most likely due to a hidden in an increase in per capita Kuznets effect. At the same GDP. This is known as the time, TFP contributions in the “demographic dividend.” 2000s are considered low. However, both of Without these factors are irreversible complementation by human processes. Both in Japan capital and institutional and Korea, the Kuznets factors, the contributions of effect disappeared once the mere expansion of physical proportion of the population capital to productivity decrease (the law of diminishing lifetime employment and marginal products of capital). corporate grouping, which The gradual but steady rise in constituted a factor of Japan’s labor productivity in Japan in comparative advantage. The the 70s and 80s relied greatly information technology on those innovative factors. revolution that swept the world However, at this phase, in the 80s, however, led to the two challenges arise. First, advent of algorithms that could human capital investment analyze big data efficiently, becomes costly to parents which is the opposite of shared in terms of effort and time tacit knowledge. of childrearing, and cost of We can deduce a education. As a result, the number of points from this birth rate for women falls historical overview. The first in this internal phase of is that an increase in labor economic growth. In the participation rate is necessary unified approach to growth, for sustained growth of per this is known as “demographic capita GDP. The potential gains transition.” from greater participation of Demographic women in high productivity transition, when combined fields and the postponement with the retirement of baby of retirement among the boomers from the workforce, elderly is already widely leads to a reduction in known. Additionally, though the relative share of the it is cause for some debate, working population (a the increased acceptance of negative demographic foreigners into the workforce bonus), and inevitably to an may also contribute to a rise aging population in a “post- in productivity — a kind of demographic transition” phase. “reserve army” for the working Distinctively Japanese factors population. Universities, also had an effect. The which face falling enrolment institutional innovations in the due to the fall in birth rates, 70s and 80s included sharing can also proactively recruit of tacit knowledge through students, primarily from other long-term interpersonal Asian countries, with the aim relationships of mutual trust of developing human capital within the framework of that understands the Japanese language, customs, and culture. capital is also necessary. Although xenophobia Post-demographic and vocal hate speech are transition is also reflected seen in Japan, Yoshida Shoin in the concentration of himself (a distinguished populations in urban Japanese intellectual from the areas. Combining urban mid-1800s) stated that the new generations that have introduction of foreigners innovative capacities of market to the country would lead to creation and execution, with acquisition of knowledge and local older generations that population growth, “killing possess traditional know- two birds with one stone.” We hows, rural regeneration that must reflect on how Japanese fits the new phase of economic culture developed historically growth can prosper tourism, through these very processes. organic farming, and new More importantly, the decentralized businesses productivity per worker that rely on information and must be increased. However, transportation infrastructures. just increasing measured Finally, for Japan — productivity by reducing now on the frontiers of post- employment and cutting wages demographic transition — the will only exacerbate falling most pressing, now-or-never labor participation rates on a policy need is the creation macro scale. of sustainable social security Rigid management system that can be agreed upon based on seniority that rests by all generations. on their laurels will lose its In “Capital in the competitive edge in the post- Twenty-First Century,” demographic transition Professor Thomas Piketty of period. The key is to build the Paris School of Economics team capabilities that can cross argues that when rate of return generational boundaries, and on capital (r) surpasses rate can integrate organizational of economic growth (g), the and technological innovations disparity in the distribution based on investments in human of wealth between owners of capital, and innovations with financial capital and the rest of IT. Reforming the education society increases. However, if system to form diverse human earners are able to participate in the distribution of financial institutional design in the post- returns through efficiently demographic transition phase. managed pension funds and social security funds, then, the unchecked and unethical growth of disparity can be curtailed. On the other hand, abolition of public pension provisions to pensioners who are able to adequately support themselves is also worthy of consideration. Masahiko Aoki, born 1938 What is needed now is a — Senior Fellow at Stanford discussion that includes young University and Senior Visiting and old generations about the Researcher at NIRA

Note: For the post-war periods, author’s calculation based on official statistics. For the pre-war growth rates, see Introduction to Masahiko Aoki’s Economics (Book in Japanese). There is no end to the game of life as long as you live, and there is no victory or defeat. Or should I say victory and defeat alternate “like the strands of a rope.” If it is settled either way, there will be no point of living. This is where I find the fun and gravity in the game of life.

(From Watashi no Rirekisho: Jinsei Ek- kyo Game (My Memoir: Transboundary Game of Life), p.250)