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The Global Agenda Council on Japan focuses on Japan’s national transformation, bridging Japan and the activities and networks of the World Economic Forum. Council members served as catalysts in Japan’s review and reform agendas over the course of the year. Council members were appointed and served as core members of Japan’s key strategic review and implementation processes in the past year, such as the National Strategy Council of the Government of Japan, and commissions on post-earthquake disaster reviews. Transforming Japan into a global problem-solving nation through the World Economic Forum will enable Japan to take a lead in solving the most important global issues, which will benefit not only Japan but also the world.
Japan is now facing its worst crises since World War II. In addition to the unprecedented difficulties caused by the 2011 Great East Japan Earthquake, including reconstruction efforts, the nuclear power plant accident and energy shortages, the nation is facing a problem known as the “lost two decades.” Japan is one of the largest mature economies of the world, and during those decades it delayed the transformation of its industrial and governmental structures to address new challenges. It must restore its economic foundation by implementing policies to achieve growth, to improve the fiscal balance, and to provide stable government for a rapidly aging society.
In this context, Japan has to solve multiple problems and urgently transform its social structure in order to maintain its competitive position and continue to be one of the world’s leading economies. Many of these challenges, such as an aging society, energy shortages, and disaster preparedness, apply not only to Japan, but also to the rest of the world in one way or another; Japan is just facing them first. If Japan can successfully solve its problems using new and innovative thinking rather than through conventional methods, the rest of the world will learn and benefit significantly.
The Council focused on two distinctive issues, sequentially, during the course of the last year. In response to the Great Earthquake and subsequent related problems, during the first half of the year the Council focused on risk-related issues. After the Summit on the Global Agenda held at Abu Dhabi in November 2011, the Council reverted to the original issues relating to Japan’s fundamental transformation. In order to hit the right balance between insight generation and impact delivery, Council members actively participated in various activities including Forum-related meetings during the year. Several meetings of the Forum communities were also held in Japan, and many Council members, including those serving on Japan’s National Strategy Council, played key roles in leading dialogues to maintain and accelerate the country’s search for new models for its transformation.
Japan has to solve multiple problems and urgently transform its social structure in order to maintain its competitive position and continue to be one of the world’s leading economies.
Challenges after the 3/11 earthquakes
- Earthquake and tsunami recovery and reconstruction: the magnitude of the damages are such that it is not a quick win for recovery and reconstruction.
- Disaster management: after the 2011 earthquake, it was realized that a higher standard of resilience is required, and the lessons learned from the disaster must be made available to the global public.
- Energy resource management: post-Fukushima, energy resource management has not been resolved given the public disapproval of nuclear energy and insufficient alternative energy sources.
- Supply chain and Japan’s risk communication: supply chain risks and Japan’s ability in global communication became critical issues after the disasters with the associated collateral damages.
Challenges faced in past years
- Delayed transformation of industrial structures: Japan’s national development structures had not progressed for nearly a quarter of a century; industrial structures have not yet transformed to cope with the requirements of the early 21st Century.
- Aging society, a declining population, and the empowerment of women: Japan is the world’s most aging society with a shrinking labour force, and poor rates of participation of women (it ranks 98th in the Global Gender Gap Report 2011).
- Skyrocketing fiscal deficit: Government debt is over 220% of GDP with little likelihood of a revenue increase and high social security costs. Reforms of social security and pension are essential.
- Unstable and high government turnover: there have been annual changes of Prime Minister for the past six years with bi-annual ministerial reshuffles. The public’s trust has been lost both domestically and internationally.
- Deflation since the mid-1990s: after the bubble economy burst in the early 1990s, Japan has had constant deflation.
- Japan’s global competitiveness: Japan’s relative attractiveness is falling along with its global competitiveness, though it is still a strongly competitive country (9th in 2012, down from 6th in 2011).
- Global financial stability: European and US market performance has directly affected the market for the Japanese yen.
- Trans-Pacific Partnership (TPP) and Economic Partnership Agreement (EPA): global trade facilitation schemes such as the TPP and EPA have been important international policy agreements.
Risk communication: overcoming information bias and credibility crises
The Great Earthquake clearly highlighted the critical importance of risk communication and its proper treatment. The natural disaster was compounded by the nuclear accident and its lingering effects. These were immediately covered by the global mass media; however, the media naturally cover the most heavily affected areas. They also reported on the damage at length but did not cover the recovery. The problem was compounded as the government lost credibility because of a lack of nuclear-related transparency. This led to unnecessary collateral damage to the undamaged and unaffected areas: there was a sharp decrease in the number of incoming tourists and a negative impact on Foreign Direct Investment (FDI) and Japan-originated exports.
To minimize this collateral damage and to help recovery from the disaster, risk communication through other media is essential, such as the active use of social media or using the flow of information from private sector companies to their global vendors and customers.
It was clearly a tough trade-off during the immediate crisis, when even the government did not have a full understanding of what was and would be happening, between full and immediate disclosure and the avoidance of panic among citizens in Tokyo’s metropolitan areas. Fuller reviews are still on-going, but from the communication standpoint, circumventing collateral damage is a challenge given the credibility crises.
This clearly suggests the important role of a global third party, particularly one with scientific expertise. Only neutral experts, who are perceived to have no vested interests, can make convincing statements to calm down unnecessary fears. This lesson and insight was provided to relevant parties within and outside the World Economic Forum communities, to enhance their risk preparedness and resilience, along with other lessons.
Ensuring Japan’s transformation: enablers and platforms for expediting change
In order to revitalize Japan’s economy and transform Japan, there are two clear tasks. One is for the private sector to ride on the growth of the Rapidly Developing Economies (RDEs), particularly in Asia. The other is to boost the productivity of domestic service industries, which make up about 75% of Japan’s GDP.
The expansion of the RDEs is challenging for many Japanese companies, which have been successful in advanced economies and target only the highest segments of RDEs. Changes in R&D strategy to accommodate the needs of the growing middle classes in the RDEs is one solution, but there are other approaches: appropriate risk-taking backed by a risk management capability, globalizing management teams, the optimization of global supply chains, etc.
Productivity improvements in the service sector have a different set of challenges, the most significant being regulation and the vested interests in sectors such as health and elderly care. Through those, Japan could transform itself from a country of challenges to a country of solutions (to global issues such as aging, sustainability and a new energy mix) and make a valuable contribution to the global community.
The Council has actively participated in various Forum-related meetings during the past year. On the risk front, several members attended the Risk Response Network (RRN) and similar meetings and provided lessons and insights from the disaster to a global audience. In particular, Mr Takeshi Mitachi and his team published the overview Key Lessons from the Great East Japan Earthquake in order to disseminate the immediate lessons that Japan learned to the world. This overview was made available at the Forum’s RRN related events. Mr Heizo Takenaka together with three other Council members including Mr Yoichi Funabashi, Mr Satoru Nishikawa (Global Agenda Council on Catastrophic Risks), and Mr Jun Murai (Global Agenda Council on Internet Security) published the book Lessons from the Disaster: Risk Management and the Compound Crisis Presented by the Great East Japan Earthquake both in Japanese and English. An electronic version of the book was disseminated to all participants at the World Economic Forum Annual Meeting 2012. Mr Kiyoshi Kurokawa was appointed to serve as Chairman of the National Diet’s Fukushima Commission to investigate the nuclear accident. Mr Yoichi Funabashi, together with Mr James Kondo and Mr Takeshi Niinami (Global Agenda Council on the Role of Business), established a foundation to run the Independent Investigation Commission on the Fukushima Daiichi Nuclear Accident and published a report.
On the transformation front, several meetings involving the broad World Economic Forum communities were held in Japan as well as outside Japan. After Mr Motohisa Furukawa became Minister of National Policy in September 2011, the Japanese government established the National Strategy Council (NSC) in late October. The NSC consists of the Prime Minister and six other cabinet ministers including Mr Furukawa, and six non-ministerial members including Ms Sadako Ogata, Mr Yasuchika Hasegawa, and Mr Hiromasa Yonekura. One-third of the members were from the Council. This means the government strategy, entitled Japan’s Rebirth Strategy, is globally relevant. Since then, because Mr James Kondo became a Special Adviser to Minister Furukawa, the Council members have synchronized the work of the Council with the official Japanese strategy to make Japan’s transformation process more relevant.
In order to enable and expedite transformation the Council would like to exceed the “what-to-do’s” suggested in the various activities of the World Economic Forum and other entities. There need to be transformation-enabling platforms and mechanisMs First, a mechanism for learning from experiences and insight from outside Japan is critical. The Council has started, with the help of the World Economic Forum and many other parties, to set up global advisory boards for Japanese leaders. It also plans to help set up clusters of networks among Japan-interested parties throughout the world. Second, the mapping of Japan’s global contribution can be made to match better and there needs to be monitoring of Japan’s role in the global agenda. The Council will, therefore, initiate this mapping exercise. Third, a healthy pressure on Japan and its governing entities is essential. The first step is the setting and promising of clear milestones for important policy execution. Reviews of policy by third parties and active use of the internet and social media are examples of the required governance structure. Fourth, the Council will also examine the key milestones and achievements of the Council itself in order to monitor the progress it has made. Fifth, the Council will continue to promote and invite key Japanese leaders to join global platforms such as the World Economic Forum to make Japan better integrated in global problem-solving processes.
The Council plans to continue to work on transformation issues, particularly the enablers and platforms for transformation, in the coming year. The series of discussions and recommendations will be made available through the Global Agenda Council process, together with the National Strategy Council in the coming months after the milestone event, the Japan Meeting held on 24 April. The Council will now proactively support the implementation of these recommendations through various schemes inside and outside the activities of the World Economic Forum.
The opinions expressed here are those of the individual members of the Council and not of the World Economic Forum or any institutions to which they are affiliated.