Wiener Staatsoper – who is the owner?

Wiener Staatsoper

One of my friends asked me who the owner of the Vienna State Opera House is

Wiener Staatsoper organization and ownership, as for Austria’s top 5 Theater Houses, is determined by the “Bundestheaterorganisationsgesetz” (BThOG)

One of my friends asked me the question “Who owns the Wiener Staatsoper these days by the way?”. This is easy to answer. Hold tight and read:

The major Austrian Theater Houses (Wiener Staatsoper, die Wiener Volksoper, das Burg- und das Akademietheater) are considered by law as the representative “Bühnen” (=stages) of the Republic of Austria, and are governed by the “Bundestheaterorganisationsgesetz” (BThOG) <- one word! you know German has long words...

According to this law, the Staatsoper belongs to the company “Bundestheater-Holding Gesellschaft mit beschränkter Haftung”, which belongs 100% to the Federation of Austria (Bund).

To understand the ownership and Governance, you need to read § 3 of the Austrian Federal Law, the Bundestheaterorganisationsgesetz. Essentially it says that the four major Austrian Theater Houses (Bühnen) above including the Wiener Staatsoper belong to a company called: “Bundestheater-Holding Gesellschaft mit beschränkter Haftung” which is founded by the Federal Chancellor, and which belongs 100% to the “Bund”, the Austrian Federation = the Federal Government of the Republic of Austria.

Read the “Bundestheaterorganisationsgesetz” (BThOG) here

You can read the “Bundestheaterorganisationsgesetz” (BThOG) here – by the way, its just being revised: Bundesrecht konsolidiert: Gesamte Rechtsvorschrift für Bundestheaterorganisationsgesetz, Fassung vom 13.07.2015

Copyright notice

According to Wikipedia, the photograph above of the Wiener Staatsoper is public domain, see: https://commons.wikimedia.org/wiki/File:Staatsoper_(ca.1898).jpg

Description
English: State opera in Vienna
Deutsch: Wiener Staatsoper, fotografiert vor 1898
Date circa 1898
Source Julius Laurenčič (Hrsg.): Unsere Monarchie – Die österreichischen Kronländer zur Zeit des fünfzigjährigen Regierungs-Jubiläums seiner k.u.k. apostol. Majestät Franz Joseph I., Georg Szelinski k.k. Universitäs-Buchhandlung, Wien 1898
Author
Josef Löwy (1834–1902) Link back to Creator infobox template wikidata:Q1705180
Permission
(Reusing this file)
Public domain
This work is in the public domain in its country of origin and other countries and areas where the copyright term is the author’s life plus 100 years or less.
This work is in the public domain in the United States because it was published (or registered with the U.S. Copyright Office) before January 1, 1923.
This file has been identified as being free of known restrictions under copyright law, including all related and neighboring rights.

Copyright (c) 2015 Eurotechnology Japan KK All Rights Reserved

Best wishes for 2015 from Tokyo!

www.fasol.com

The photograph shows the Gobelsburg Castle in Austria, you can see the location here on Google maps. A castle of this name is mentioned in 1178, and wine is grown in the region for about the last 1000 years.

Thoughts and analysis for 2015

Abenomics?!

The trick of course is the third arrow, the reforms. Read what Professor Takeo Hoshi has to say about Abenomics, Japanese economist, who has worked his way up US Universities, and has now reached the position of Professor of Economics at Stanford University. By the way, here is my talk at Stanford University – some years ago, but much of it still applies today.

Japan’s energy

Japanese people’s views on nuclear power are polarized, and its unclear and unpredictable when nuclear power stations will be switched on again in Japan. Read what the Governor of Niigata Prefecture has to say, who hosts the world’s largest nuclear power plant with 7 reactors and 8 GigaWatt capacity.

According to the Japanese Energy Fundamental Law, the Government has to publish an official Energy Basic Plan at regular intervals. You can read the 4th Energy Basic Plan published on April 11, 2014, and listen to a commentary on it for The Economist here on YouTube. The 4th Energy Basic Plan starts with the assumption that Japan is poor in natural energy resources, which of course is only true if we restrict “natural energy resources” to fossil resources. Japan is actually potentially very very rich in renewable energy sources, as the scenario plans developed by Japan’s Industry and Economy Ministry (METI) and Japan’s Environmental Ministry show.

Solid state lighting saves energy

GaN LEDs were invented and commercialized in Japan, and Shuji Nakamura, Isamu Akasaki and Hiroshi Amano won the 2014 Nobel Prize in Physics for this work. Read the summary of Shuji Nakamura’s keynote at the 5th Ludwig Boltzmann Forum.

Post-Galapagos and globalization of Japan’s technology groups

To overcome Japan’s Galapagos issues and to acquire technologies and market access, Japanese companies are acquiring overseas: read a list of Japanese acquisitions in Europe here.

Foreign companies in Japan, and Japanese companies overseas face a dilemma: expensive expatriates with limited local know-how, or local management? Japanese companies seem to have finally reached the conclusion that Japanese managers eg sent to Germany are in most cases not the best choice to lead a German-based multinational company – here are some great recent examples:

  • Docomo acquires a majority stake in net mobile AG, however net mobile AG remains a publicly listed company. Read details here.
  • NTT DATA acquires SAP solution provider itelligence AG, however itelligence AG remains an independently managed company under the founder’s management, and grows aggressively via acquisitions all over the globe. Read details here.
  • NTT Communications acquires a majority of Integralis, Integralis is renamed NTT Com Security AG, however NTT Com Security AG remains traded on the m:access market of the Munich Stock Exchange. Read details here.

Carlos Ghosn is very well aware of such multi-cultural management issues and how to solve them, however too many EU companies in Japan are not. If they were, EU investments in Japan could be at least 50% higheras you can read here.

Best wishes, and much success in 2015!

Copyright·©2015 ·Eurotechnology Japan KK·All Rights Reserved·

Keep fit and save electricity: climb the stairs the geeky way

Keep fit and save electricity: geeky way to encourage people to climb stairs, seen in Tokyo at Tokyu Hands Shibuya store

Keep fit and save electricity

Geeky way to persuade people climb the stairs – see in in Tokyo/Shibuya

Its not easy to persuade people to climb the stairs instead of taking the elevator.

Tokyu Hands store in Shibuya found a geeky way to persuade people to Keep fit and save electricity at the same time:

Show the calories your body burns walking up the stairs, which should help you loose weight – and save on the store’s electricity bill at the same time.

After the Fukushima nuclear disaster and the closure of all of Japan’s nuclear power stations, saving electricity has become a top priority. In Tokyo’s subway and trains fluorescent lighting has been replaced by LED lighting, some fluorescent tubes have been removed, and some elevators were at least temporarily shut down to save electricity – in Japanese: 節電. The Tokyu Hands Store in Shibuya found a geeky way to encourage customers to keep fit, burn calories, climb the stairs, and save electricity all at the same time.

Keep fit and save electricity: geeky way to encourage people to climb stairs and save electricity, seen in Tokyo at Tokyu Hands Shibuya store
Keep fit and save electricity: geeky way to encourage people to climb stairs and save electricity, seen in Tokyo at Tokyu Hands Shibuya store

Copyright·©2014 ·Eurotechnology Japan KK·All Rights Reserved·

Corporate governance in Japan – views of an Independent Board Director of a listed Japanese Company

Nihon Television

Prime Minister Abe urges reform of corporate governance

Slow but steady change…

Reuters reports that Japan’s Prime Minister Abe urges company boards to reform corporate governance to include independent directors. I added the following comment.

Corporate governance in Japan: exercise of shareholder power and emergency situations

The question of independent Board Directors is often framed in terms of exercising shareholder power over the company, as is the main message of the article above. Another focus of discussions on the role of outside independent directors, is during emergencies, and here the Olympus case is often cited.

Corporate governance Japan: steady state contributions of independent directors

However, in my experience in Japan, including my work as a non-Japanese independent Board Director of a public Japanese company, enlightened companies will welcome independent Board Directors for their know-how and contributions to the company – in the end the market decides.

Docomo vs SoftBank

As an example, lets compare NTT-Docomo and SoftBank. NTT-Docomo has a homogeneous pure Japanese Board, while SoftBank has independent Directors from many different countries and from many different walks of life. SoftBank recently overtook NTT-Docomo in terms of market cap, revenues, operating income and net income.

In the end regulations have limitations, regulations influence behavior of course, but regulations do not produce business results or grow new business (with the exception of the compliance industry), and the realities of the market decide, as is the case of SoftBank.

SoftBank and SPRINT

As another example, SoftBank appointed Marcelo Claure, CEO of Brightstar Corporation and of Bolivian origin, to the Board. Masayoshi Son announced the appointment with the following words: “Marcelo’s experience as an entrepreneur and businessman who created and successfully grew a global telecommunications company will bring an invaluable perspective to Sprint’s board.” Note that Masayoshi Son clearly states that Marcelo Claure is appointed to bring invaluable know-how and experience to SPRINT, Masayoshi Son does not seem to be motivated by “increasing the power of the shareholders over Sprint”.

The “power of shareholders” is usually a matter of last resort, when all other methods fail.

Usually, when you have to show your power, its too late.

Copyright (c) 2014 Eurotechnology Japan KK All Rights Reserved

Japan’s new energy policy – interview by The Economist

Japan’s new energy policy – Gerhard Fasol interview by The Economist

Japan’s new energy policy: interview for The Economist on YouTube

Japan’s new energy policy – interview outline:

Japan’s new energy policy Question: Is the new energy policy of Japan’s Government an appropriate response to the situation or a missed opportunity

Answer summery:The Government in its new strategy summarizes Japan’s energy situation and proposes a cocktail of different energy sources. Everyone knows that Prime Minister Abe is pro-nuclear energy, but that does not mean that he is against other energy sources, such as renewables. The new energy strategy paper though misses KPIs, Key Performance Indicators. There are no many numerical targets.

Japan’s new energy policy Question: It is often repeated that Japan is poor in energy sources, is this true?

Answer summery:It is often repeated that Japan is poor in energy sources. This is only true as long as we restrict our view to traditional carbon based primary energy sources such as oil, gas, or coal. But if we widen the view to renewables such as wind, water, solar, biomass, and geo-thermal energy sources, then Japan is actually very rich in primary energy sources, and could even aim for energy self-sufficiency. Off-shore wind alone would be sufficient to make Japan energy self-sufficient.
Just by repeating the statement many times, that Japan is poor in energy sources, does not make this statement true.

The new energy policy paper also starts out by saying the Japan is poor in primary energy sources. This is not true if we widen the view to renewable energy sources.

Japan’s new energy policy Question: Re-engineering the electricity grid. Can you explain the concept?

Answer summery:The electricity grid has evolved over many years, maybe 100-150 years. The traditional architecture of the electricity grid is a top-down one-way distribution network from large central power station such as large coal-, gas- or oil-fired power stations or nuclear power stations, to consumers. The traditional electricity grid is similar to the arteries in the human body, where there is the heart in the center, and the arteries distribute the blood to the extremities. This traditional top-down grid has served us very well for a long time, but the time as come now to evolve the grid to the next stage. There will be more distributed power generation, which feed in electricity in the opposite direction from the extremities, and there will be more intelligence in the grid.

Japan’s new energy policy Question: How do you see Japan deal in the future with supply and demand manages, how do you see electricity prices evolve in Japan?

Answer summery:With the liberalization there will be more flexibility in the pricing of electricity and supply and demand management. Prices will not necessarily go down, but will depend much more on the timing of demand, on demand/supply management, or on the value of electricity. For example, mission critical electricity consumers such as data centers or hospitals will need a different type of electricity supply, than washing machines in households. Demand/supply management and smart grid will manage the timing of less critical electricity usage.

Economist briefing “Keeping the lights on – deregulation, new and renewables and Japan’s energy mix” handouts

The interview is based on our reports:

Copyright·©2014 ·Eurotechnology Japan KK·All Rights Reserved·

Professor Frank Kelly, Master of Christ’s College, Cambridge and Professor of the Mathematics of Systems

Professor Frank Kelly, Master of Christ’s College, Cambridge and Professor of the Mathematics of Systems Professor Frank Kelly speaks about the future of Cambridge University and of Christ’s College

Professor Frank Kelly speaks about the future of Cambridge University and of Christ’s College

Frank Kelly, Professor Francis Patrick Kelly FRS, Master of Christ’s College, Cambridge, and Professor of the Mathematics of Systems, gave us his view of Cambridge today at the Cambridge Oxford Society of Japan in Tokyo.

Professor Frank Kelly: In Cambridge the Colleges provide the personal connection, while the University provides the scale

In the past Cambridge competed with Oxford, and Oxford’s saw Cambridge as the only competitor. Today this picture has changed dramatically, both Cambridge and Oxford compete globally, and especially more and more now with Asia, such as China, Korea and Japan. In order to keep ahead in this global competition, Cambridge needs more headroom for research.

Professor Frank Kelly: The North West Cambridge Development

One big venture is the North West Cambridge Development:

  • 150 Hektar
  • 5000 post-docs
  • 2000 graduate students
  • 600 million pounds
  • 11,000 cycling space reflecting Cambridge customs

Professor Frank Kelly: Cambridge University’s first bond

To the financing contributed a 350 million pound bond, which was awarded AAA rating (which according to Professor Frank Kelly is a better bond rating than the Government of the United Kingdom currently achieves).

Professor Frank Kelly: the role of “benefactors”

We have the annual Benefactors’ Dinners at Cambridge and Oxford Colleges. “Benefactors” used to be the people, who founded the Cambridge and Oxford Colleges 100s of years ago, and who we have as oil paintings on the walls. However, this picture has changed in the last 20-30 years. Today, our benefactors are also living people, our alumni, who are living benefactors, role models and inspirations in their professions for our undergraduates.

Professor Frank Kelly: about alumni

Colleges today have several stake holders: undergraduates, graduates, Fellows and alumni, and alumni are by far the largest group by numbers.

We have a good business model, where the cost of each student to the College and the University is partly paid by fees, and part from elsewhere. However, this business model is difficult to scale to larger numbers. So our size in terms of student numbers is likely to remain as today.

Copyright·©2014 ·Eurotechnology Japan KK·All Rights Reserved·

Social media revolutionize how we market brands (Ray Bremner, President & CEO, Unilever Japan)

Social media revolutionize how we market brands (Ray Bremner, President & CEO, Unilever Japan)

Ray Bremner, President & CEO of Unilever Japan gave a talk at Waseda University

From Advertising to consumers to mattering to people

My key take-away is that social media have made the top-down “begin told” way of advertising obsolete, and replaced it by finding, sharing and engaging.

About Unilever:

  • Unilever was founded in 1929 by the merger of the British soap maker “Lever Brothers” (founded in 1885 by William Hesketh Lever, The Right Honourable The Viscount of Leverhulme), with the Dutch margarine producer “Naamloze Vennootschap Margarine Uni”, which was formed by the merger of several margarine companies, including those of Antonius Johannes Jurgens and Samuel van den Bergh. Soap brought hygiene to ordinary people, and margarine helped people who could not afford butter. Both companies, Lever and Margarine Uni had in common that they used palm oil as raw material.
  • The merger of Lever and Margarine Uni was decided over dinner in London in 1929, and written down in a 100 word merger agreement – unthinkable today for an M&A agreement.
  • About 50% of Japanese people have Unilever products at home
  • Unilever vision 2010 is: double the business, while reducing the environmental footprint. Execution of this vision is measured by 60 KPIs and the results are published.
  • Unilever vision:
    • We work to create a better future every day.
    • We help people feel good, look good, and get more out of life with brands and services that are good for them and good for others. We will inspire people to take small everyday actions that can add up to a big difference for the world.
    • We will develop new ways of doing business that will allow us to double the size of our company while reducing our environmental impact.
  • Unilever mission: building brands that improve people’s lives.
Social Media is revolutionizing the way we market brands
Ray Bremner, President & CEO of Unilever Japan: Social Media is revolutionizing the way we market brands

Ray Bremner: “social media are revolutionizing the way we market brands, and they are making people like me extinct”.

From 2001 to 2013, the average time Japanese consumers spend watching TV has decreased from about 3 1/2 hours/day to 3 hours/day, while the time spent with PC & mobile has tripled from 1/2 hour/day to 1 1/2 hours per day. Most Japanese age groups use social media, usage peaks at 35% for men in their 20s, and around 45% for women in their 20s, and around 30% in their 30s.

TV reaches about 88% of Japan’s population, and digital media (PC and mobile) reach about 73%.

From 2001 to 2012, advertising expenditure in Japan has decreased from about US$ 27 Billion/year to US$ 23 Billion/year, while expenditure for digital media has increased from zero to US$ 12 Billion/year. For an overview of Japan’s media markets – see “Japan’s Media“.

How to make marketing messages a pleasure rather than annoying?

How do we succeed? Crafting brands for life.

  • Put people first, not just consumers. Real people with real lives.
  • Build brand love.
  • Unlock the magic.

The brand love triangle

How do you create a conversation people want to participate in?

We use the “brand love triangle. “The people we serve” are in the center. The three edges of the brand love triangle are:

  • Purpose (brand point-of-view) <--- brand history dive
  • Product truth <--- product dive
  • Human truth <--- people immersion
Ray Bremner, President & CEO of Unilever Japan: Real people with real lives
Ray Bremner, President & CEO of Unilever Japan: Real people with real lives

“Dove Real Beauty Sketches” by Steve Miles

Brands need a purpose, a point of view. Before 2002 Dove did not have a purpose.

Steve Miles talking about Dove and himself:

93% of women do not think they are beautiful – men are opposite: 93% of men think that they look just great. Dave Miles (and Dove’s) point of view is that everyone is beautiful. This point of view is expressed in “Dove Real Beauty Sketches”, which won the Titanium Grand Prize and 10 Gold Lions at Cannes 2013:

As of today, “Dove Real Beauty Sketches” has 61,767,827 views on YouTube, which is not as much as PSY’s Gangnam Style with 1,888,086,686 views, but still – pretty amazing.

Another example of brand communication is Harley Davidson, which signifies “Freedom of the Road”, independent character. Harley Davidson creates a bond to customers by presenting each customer with the “umbilical cord”, the belt with which the Harley Davidson motor bicycle was tied down during the transport from the factory to the customer.

Focus: In 2000, Unilever had 1600 brands and today 400 brands.

Q&A

Question: How many of your campaigns in Japan are global campaigns? How many are Japan-only?

Answer: practically all campaigns for all international brands of any company are made in Japan for Japan. That is not to say that global ideas do not work. In fact in most cases International Brands have the same brand and advertising positioning in Japan as elsewhere in the world. What does differ for Japan is that often Japanese consumers have different usage habits, have different views about the world and the cues within the advertising can leave different impressions on Japanese minds. The Japanese consumer is highly observant of small details in advertising ; much more so than the average European for example.

That means that we test Global campaigns but very often we have to create Japan only executions so that how we express the idea is done totally with the Japanese consumer in mind. This is more costly and time consuming but essential for success.

Copyright (c) 2014 Eurotechnology Japan KK All Rights Reserved

Japan’s electronics conglomerates: Whats the difference between Apple/IBM vs Sony/Panasonic/NEC?

Japan's electronics conglomerates: Whats the difference between Apple/IBM vs Sony/Panasonic/NEC?

Why are Apple/IBM/Microsoft/Google so very different compared to SONY/Panasonic/NEC

Need for corporate governance reforms in Japan

My friend’s question: Why are Apple/IBM/Microsoft/Google so very different compared to SONY/Panasonic/NEC

Gerhard Fasol’s answer: Profit and growth. Apple and IBM grow and are highly profitable. Sony, Panosonic and NEC have no growth and no profit for 15 years – read here:
http://www.eurotechnology.com/2013/05/20/japans-big-8-electronics-giants-fy2012-results-announced/
for more detailed analysis, read our Report on Japan’s electronics sector

My friend’s question: Gerhard, we know about the difference in profitability and growth. The question is, what made such a difference in profitability and growth

Gerhard Fasol’s answer: there are many down-stream issues, e.g. acquisition of cloud startups, execution etc. Much of this is summarized in an excellent talk by Masamoto Yashiro, which I have written up here: http://www.fasol.com/2013/10/19/masamoto-yashiro/

There are:

  1. superficial reasons, like YEN-rate, interest rate, global recession etc
  2. execution and management issues, the kind of stuff you learn at Business Schools
  3. the big underlying issues

the big underlying issues are brains (=hardware) and education (=operating system and software for those brains).

There are many fantastic Japanese companies. In a free market, its no surprise that companies are born and others die. Its called Schumpeter’s creative destruction. In a way its more surprising that companies can survive so long with a long-dead business model.

Have you heard about the German company AEG? AEG built the electricity system for Tokyo a long time ago – thats why Tokyo has 50Hz and Osaka has 60Hz. AEG disappeared about 30-40 years ago. There are still some companies today licensing the AEG brand, which is still famous, however, the traditional AEG company disappeared with bankruptcy in 1980. You can read about this here: http://www.csmonitor.com/1982/0812/081250.html

it says:
“Plagued by bad management throughout the 1970s, West Germany’s 10th largest employer overextended itself and became involved in too many loss-making enterprises. It invested heavily in the wrong kind of nuclear technology and its domestic appliances business fell prey to growing competition in a stagnant market.
In the last four years, it posted operating losses of 4 billion marks ($1.6 billion) and despite massive injections of credit from the banks in 1979 and again last year, it did not recover. Mr. Duerr partly blames the worldwide recession and high interest rates for the failure.”

Sounds familiar? thats AEG in 1980.

Copyright (c) 2013 Eurotechnology Japan KK All Rights Reserved

Briefing the Trade Minister of Sweden, Dr. Ewa Björling, on Japan’s energy sector

Lunch today with the Trade Minister of Sweden, Dr. Ewa Björling, chaired by the Ambassador of Sweden. Was asked to brief Minister Björling and a delegation of Swedish CEOs about Japan’s energy sector. Gave Minister Björling a 20 minutes presentation followed by discussion.

Dr. Ewa Björling is extremely impressive, she is dentist, teaches virology at Karolinska Institutet, is Deputee of Rikstaget (the Parliament of Sweden), and Trade Minister of Sweden. According to Dr. Ewa Björling’s website, she plans to double Sweden’s exports within five years.

My presentation to Minister Dr Ewa Björling was based on our reports on
Renewable energy in Japan and
Japan’s energy sector

A few months ago, I was invited to discuss Japan’s energy sector with the Energy and Natural Resources Minister of Canada, Mr Joe Oliver, see here.

Copyright·©2013 ·Eurotechnology Japan KK·All Rights Reserved·

Abenomics success probability is 12%, 88% probability of failure (Professor Takeo Hoshi, Stanford University)

Takeo Hoshi Stanford University Abenomics

Professor Takeo Hoshi, Professor of Economics at Stanford, about Abenomics success probability

Why did Japan stop growing after completing the catch-up with advanced countries?

Takeo Hoshi, Professor at Stanford University, who devotes his life to work on Japan’s economy at US Universities, gave a talk at the Swedish Embassy organized by the Stockholm School of Economics on Monday, October 21, 2013 entitled:

Will Abenomics restore Japan’s growth?

Outline:

  1. What is Abenomics?
  2. Will Abenomics restore growth?
    • Why did Japan stop growing?
    • Will Abenomics succeed in regenerating growth?
Professor Takeo Hoshi, Stanford University
Professor Takeo Hoshi, Stanford University

Summary – Abenomics success probability:

Professor Hoshi explained that Abenomics is essentially nothing new, its the classical response for a Government to take a country out of recession. However, monetary policy cannot restore growth – in order to restore growth structural reform is needed.

Why did Japan stop growing? Until 1990-1995, Japan was in catch-up mode, catching up with the more technologically and economically advanced Western countries, like European countries and US. Catching up was relatively straightforward, because Japan’s Government could look which industries were most successful and most important in US and Europe, e.g. car industry and electronics industry, and steel making, and then implemented these industries in Japan. However, as soon as Japan had reached the same stage of development as Western countries, Japan’s economic growth stopped, because different methods were necessary, and they seem to be lacking in Japan. So Japan stopped growing around 1990-1995, and has not grown since.

Growth strategy is the “third arrow” of Prime Minister Abe’s Abenomics. Professor Hoshi explains that a growth strategy is nothing new, but every Japanese Government of recent years had a growth strategy, but nothing happened because the implementation did not happen – implementation is the key. Abenomics’ “third arrow” lists more than 100 growth areas, however, Professor Hoshi sees a lack of priorities, too much Government directionalism, and a lack of strong Key Performance Indicators (PKI’s).

When asked during Q&A how high Professor Hoshi estimates the chances for the success of Abenomics, Professor Hoshi said that he estimates that the probability for success of Abenomics is about 12%, and the probability of failure is about 88%. The most likely scenario according to Professor Hoshi is that something similar will happen as under Prime Minister Koizumi, about 1% economic growth

What is Abenomics:

Three arrows:

  1. Expansionary monetary policy
  2. Flexible fiscal policy
  3. Growth strategy

Prime-Minister Abe replaced Shirakawa by Kuroda as Governor of the Bank of Japan, who introduced quantitative and qualitative easing, and an inflation target of 2% within 2 years in order to overcome “deflation” (which in Japan can have two distinct meanings, see below).

Fiscal Stimulus:

Fiscal stimulus was provided by supplementary budgets, financed by new Government bond issues.

Fiscal consolidation plan:

The medium term fiscal consolidation plan aims to:

  1. reduce the budget deficit to 3.3% of GDP by FY2015, to half the level of FY2010, and
  2. to eliminate the budget deficit by FY2020.

If the 2013-2022 economic growth rate is 3.4% per year, 1. (reduction of budget deficit 10 3.3% by FY2015) will be achieved, but 2. (elimination of budget deficit by FY202) will not be achieved.
If the 2013-2022 growth rate is 1.3% per year, neither 1. nor 2. will be achieved.

Growth strategy

The “Japan revitalization strategy” (JAPAN IS BACK) was approved by the cabinet on June 14, 2013, and provides:
3% average nominal economic growth
2% average annual real growth
YEN 1.5 million increase in nominal national income per person

Three action plans:

  1. Industry revitalization plan
  2. Strategic market creation plan
  3. Strategy of global outreach

Overcoming “deflation”?

Abenomics aims to overcome “deflation”. Deflation really has two meanings:

  • Falling prices, because of low demand for goods and services
  • Economic stagnation in combination with falling prices

In Japanese policy discussions, usually “deflation” has the second meaning – thus its important to restore growth in order to eliminate “deflation”.

Is Abenomics new?

Not really. It is the standard policy to get out of recession and to restore growth. Its a combination of demand policy and a supply side policy for growth. What is new in Japan is that until Abenomics, the Bank of Japan did not expand aggressively, and it could be new in Europe, where fiscal austerity is a problem.

Why did Japan stop growing?

Mainly because Japan’s catch-up phase with Western countries has been a success, and Japan reached the same level of technology and economic development as Western countries around 1990-1995. The catch-up was straightforward by imitating in combination with lower wages. As soon as Japan reached the same level of development as Western countries, Japan’s economic growth stopped.

However, US and UK and other Western countries continue high growth of GDP even at high levels of economic development, while Japan does not.

Why does Japan grow much less than US, EU and other Western countries?

  1. Because Japan’s population is aging more rapidly than Western countries, because of lower fertility rates and lack of immigration
  2. Because the export led growth has reached its limits, and internal growth would be necessary
  3. Because Japan’s Government make policy mistakes:
    1. Japan’s Government protects zombie companies, that hurt allocation of capital and productivity
    2. Regulatory policies impaired productivity growth
    3. Macroeconomic policy mistakes

Will Abenomics restore Japan’s economic growth?

Fiscal policy cannot restore economic growth, only structural reform can – thus Abenomics’ “third arrow” is the important one.

Japan revitalization strategy – too many areas, too little focus, fuzzy Key Performance Indicators (KPIs)

Prime Minister Abe’s revitalization strategy has three action plans:

  1. Industry revitalization plan
  2. Strategic market creation plan
  3. Strategy of global outreach

Regulatory reform aims to reduce the costs of doing business, to stop protecting zombies, and “special zone” policies.

Trade agreement talks are held with under the TPP program and with the EU to open up Japan’s economy to global competition.

Macroeconomic policies aim to stabilize the Japanese Government debt and to stop “deflation”.

According to Professor Hoshi, the Prime Minister Abe’s Revitalization Strategy has around 150 different action areas, and some of them are very good ideas, but others are terrible.

In particular Professor Hoshi criticizes that there are far too many action areas, and there is a lack of clear priorities and a lack of focus. It would be better to select fewer priority areas, and take strong effective action in these most important areas.

Professor Hoshi also sees a return to Government selection of “winning industries”. Unlike the time, when there was no internet, and when growth was a matter of copying the US or UK, Government today is in no better position than private industry to know which industries are which are likely to be the winners of the future.

One of the worst examples is the “Cool Japan” initiative: as soon as the Government supports anything, its not “cool” anymore, says Professor Hoshi.

Abenomics- Lack of strong Key Performance Indicators (KPI): only 19% of reform areas have any numerical KPI within 5 years

Growth strategies need clear numerical Key Performance Indicators (KPIs) – for many areas there are no KPIs at all, for others the KPIs are fuzzy and ill-defined (e.g. “Japan will become the most innovative country in the world”), or the KPI target date is so far in the future, that it is irrelevant for the current Prime Minister or the current Government, e.g. 2020.

Of 52 reform areas in the Government’s growth strategy program:

  • 10 areas have no KPIs at all, i.e. the Government cannot measure if any progress is achieved at all in these areas
  • Only 10 of 52 areas (only 19%) have any numerical KPI within 5 years.
  • In many cases the KPIs are ill-defined and fuzzy: e.g. “Japan to become the most innovative country in the world”, or target dates in 2020, i.e. irrelevant and out of the responsibility of the current Government and the current Prime Minister

Special zones – risk to redistribute economic activity geographically within Japan with zero net effect.

Special zones where regulations and approval conditions are relaxed are ideas which have been floated for a long time in Japan. The disadvantage of “special deregulated zones” is that economic activity is just redistributed in Japan, moving from regulated zones to deregulated “special zones” with zero net effect on Japan’s economy, or even increasing the total cost of doing business in Japan.

Abenomics – Reheated pizza?

In conclusion of his talk, Professor Hoshi showed the following slide, which shows the vision of a transition from present Japan (left) to the Japan of the Future (right):

Professor Takeo Hoshi at the conclusion of his talk shows Prime Minister Koizumi's plan for
Professor Takeo Hoshi at the conclusion of his talk shows Prime Minister Koizumi’s plan for “Japan in the future” from 2001

The image of this slide is from Prime Minister Koizumi’s revitalization plan of 2001, i.e. 12 years ago. Professor Hoshi uses this slide to make the point that in his view not much has changed since 2001, that Prime Minister’s Abe’s revitalization plan is not very different from Prime Minister Koizumi’s revitalization plan 12 years ago, and he remains skeptical of Abenomics and its chances for success.

Abenomics success – Q & A

Q. What is the probability for Abenomics to succeed?

A. I was asked this question previously and from the top of my head I instinctively answered that Abenomics has about 10% probability to succeed. I got intrigued, and sat down to work through a decision tree of different policies, and the result was: Abenomics has 12% probability to succeed, and 88% probability of failure

Q. What do you think is the most likely scenario?

A. Something like what happened under Prime Minister Koizumi. About 1% economic growth, but not 2%-3%

Q. Management of Japanese companies?

A. Many major Japanese companies pile up too much cash, should invest more, and pay more to shareholders.

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