Interview: Entrepreneurship; Japan vs US, Etc.

The consequences of economic weakness when living in a tough neighborhood

These are edited excerpts from an interview of me conducted by Anthony Griffin of Kokoro media. For the full interview, see https://kokoro-jp.com/interviews/4202/

Q: You have suggested that entrepreneurship could be the key to reigniting Japan’s economy. Do we have any new evidence that indicates whether entrepreneurship is a “false spring” or “real opportunity?”

A: It is a real opportunity. However, Japan has often found a way to miss opportunities. One of the opportunities right now is that the Liberal Democratic Party [LDP], Keidanren [Japan Business Federation], and others actually beginning to recognize that they need entrepreneurship. Keidanren called for a tenfold increase in venture capital funding and wants to see 100,000 new startups in the next five years. Additionally, some of these bureaucrats are so sharp and so dedicated to the real mission of helping Japan that they’re going to keep pushing for change. You also have entrepreneurs who created their own lobbying group, JANE [Japan Association of New Economy], and they’re moving into these circles. That’s the good news.

            The bad news is that Prime Minister Kishida is like a doctor who has given you a wonderful diagnosis but won’t give you the prescription for the medicine you need.

            Still, I would argue that Japan has the best political chance in a generation to make breakthroughs. It’s going to be an uphill climb, and the contest over this is what my upcoming book is about.

Q: What can other countries learn and apply from Japan’s economic strengths and weaknesses?

A: If you compare the U.S. and Japan, Japan’s problems are eminently solvable, except from the political standpoint. If they take the right measures, things could be fixed. The U.S., however, has a different set of problems. The lousy education that so many of our lower-income students receive generates a labor force without in-demand job skills. With the student debt problem, we’ve got people who have to drop out of college. We’re not investing in our future.

            One of the things that Japan does well is providing universal education. Now there are some problems with certain aspects of it regarding skill building and creativity. However, Japanese high school kids are among the best in the world. Then there’s healthcare. It’s egalitarian, which is one reason the average Japanese lifespan is so much longer than ours.

            There’s also the so-called “American dream,” where how well you’ll do in life depends not on your parents’ education and income, but on your own drive, ambition, and inborn talent. Japan today is much better in this regard. America is losing that dream, year by year, because of deep-seated social issues.

            The tragedy of Japan is that its problems are so much easier to solve, but yet they don’t solve them. The American tragedy is that our problems are really hard to solve, and we’re not even facing them. Instead, we’re just glaring at each other angrily.

Q: A common argument against raising the minimum wage is that companies are just going to pass that expense back on to the consumer, which means workers will be right back where they started.

A: The more popular argument is that people who work for minimum wage work for businesses, like restaurants, that can’t easily pass prices on to the consumer. So, jobs will be lost. That is what economists thought 20 or 30 years ago. However, most modern studies, based on much more data, indicate a negligible change in jobs, either up or down. Why would jobs increase? What employers really care about is not the wage level but the actual cost of a worker. When workers are paid a low minimum wage, there’s an awful lot of employee turnover. The cost of training a worker, losing that worker, and getting a new worker is equivalent to two or three months of pay, each time. If you raise the minimum wage, there is less turnover and total wage costs go down, which can lead employers to hire more workers. But the numbers are small. Even the International Monetary Fund, which is not known as a pro-worker organization, has said that Japan needs to raise the minimum wage to boost consumer spending.

Q: Considering the current economic situation as well as unresolved demographic and labor issues, what is Japan’s long-term economic outlook?

A: The answer to this question is in Japan’s hands. Japan is capable because of the talent of its people. This is a case where the whole is so much less than the sum of the parts. Really smart people are trapped in institutions that are too rigid, without enough chances for new companies to grow.

            If Japan makes the right choices, it will prosper and be a significant power in Asia, which would be a good thing for the standard of living within the country and for the peace, prosperity, and stability of the region. On the other hand, if Japan makes the wrong choices, we’ll see a continuing decline in living standards for a large share of the population. Also, Japan will play less of a role in the region. You can be Switzerland, not grow very much, and have a pleasant existence. However, Japan is not in the same geography as Switzerland. Japan is in a tough neighborhood with problems and instability. It’s a country with the heft, in line with other like-minded countries, to do things that would make China integrate as a responsible regional partner. If Japan can’t do this, then there’s no regional counterweight to China.