Radio Nippon presents, “Sugahara Akiko’s EDGE TALK” Part4 Guest is Mr. Richard Koo
S: Following on from last week, we're at the Nomura Research Institute to interview Mr. Richard Koo. In our previous talk, we discussed what a balance sheet recession is, a recession in which there is too much money left unused and thus government intervention is necessary through borrowing for public work projects and the like to create movement in the stagnant economy. On the other hand, some people claim mounting national bonds as highlighting the uncertainty about the future encouraging higher taxes and budget-balancing. Like the fiscal reform plan hammered out under the Koizumi Cabinet, the current government is trying to put Koizumi's reform plans into action immediately to maintain a healthy economy. Which view is correct?
K: The kind of recession we're in is not covered in any kind of business or economics books. People usually try to deal with things in the way they would do in a normal recession, in which case, it's usually just a matter of overstocking thereby an adjustment of production over a period of six months or a year will help things get sorted out. If you look at past recessions, you can see that. However in the kind of recession we're in, it's like everyone in the private sector has too much debt and the economy can only get worse as they try their hardest to repay their debts all at once in order to balance their books. It wouldn't be an issue if some of them had a positive attitude but when everyone does exactly the same thing at the same time, it becomes a serious problem. As complicated as it may sound, the theory 'fallacy of composition' explains this. Suppose you were a farmer, if every farmer were growing the same kind of crop, you wouldn't get as much benefit as you would otherwise. So in this kind of situation, even if the government tries to convince people to stop working on their debts, they won't listen as they're doing the right thing to get out of the debt. However if things go on like this, our economy will go downhill and shrink and the government need to take the opposite action from the private sector in order to prevent this from happening, that is to say, borrowing money to use it up. This kind of recession occurs maybe only once a century so it's such a rare case that it's beyond the scope of people's knowledge and for this reason, people accuse the government of budgetary handouts at their sudden announcement of huge spending plans. Therefore people need to understand the mechanism of this recession properly otherwise it'd only be arguments over the government's lavish spending or the responsibilities of the people.
S: Also if the government themselves understand it well enough to be a role model for other countries, following generations would know what to do, but in terms of the people's ability to understand economics, we seem to be far from where we need to be.
K: But our former prime minister Mr. Aso had this knocked from the very beginning as he used to be a business person so he understood what a balance sheet recession is very quickly and even during Koizumi's administration, he made sure that the government didn't go out of control. Besides he explained all this in an attempt to call for the importance of government spending both at the G-20 summit held in Washington last November and the meeting with President Obama in February this year. Though he really needs to practice what he preaches more in Japan, he has been actively engaged in sending out the very important message that Japan has to the world.
S: Despite his active involvement, he seems to have been underestimated in Japan. Do you think his messages have got through to the public?
K: Well, I'd rather not comment on Japanese politics but when the new government led by Mr. Aso was elected, the press only cared about one thing and that was when an election would be held. It was literally all they cared about. They weren't really interested in new policies or directions that he was going to take Japan in. The new cabinet was established when the bankruptcy of Lehman Brothers was shaking the world so the new government led by Mr. Aso was faced with one problem after another and hardly had any time to spend on arranging elections. Basically he was judged only on one criteria and as he had absolutely no time to hold elections, he was so heavily criticized that I came to worry about the future of Japan.
S: In that sense, when the media coverage has declined in quality, the public suffer, don't they?
K: Yeah and that is catastrophic.
S: This might have got something to do with journalists and reporters not thinking enough, not doing their research.
K: They seem to be keen on creating heroes out of those who promise sweeping reform and fiscal reconstruction and that's why we turn of politicians into figures that are fighting for the good of the people. If I were a doctor and consulted my patient which would be the sick economy, I would wish I could simply prescribe fiscal reform as a remedy to the situation, but looking at the complexity of the problem, we just can't do that. Therefore, if government doesn't properly treat the problem the people are left in trouble and that's why I help people because the government fails to. I feel that the media is too fond of attaching labels. They say to me, 'Ah, Mr. Richard Koo, you're an expansionary fiscal advocator.'
S: You've got a label as an advocator. Haha.
K: I've been talking about this because we are in this particular kind of recession, otherwise I'd have no intention to do so as there are a lot of other recession cases in which fiscal reconstruction is effective but in the current kind of recession which only happens maybe once in a century, I believe that spending is the way forward.
S: Seeing that top ranked politicians as well as economists from all over the world are taking on board what you are saying thereby creating a shift for the better, I think the world has avoided taking a turn for the worst.
K: I think it has been seen all over the world. At the beginning of last year, Mr. Strauss-Kahn from the IMF announced the world-wide need for fiscal action and it was their first announcement to be made on public spending since the establishment of the IMF. Furthermore, all the people who had disagreed with the public spending changed their minds one after another after realising the recession we've been is not the same as what we have had before and is actually quite similar to the one that started in Japan. It's good to see them shifting the philosophy of policy-making towards public spending.
Radio Nippon presents, “Sugahara Akiko’s EDGE TALK” Part5 Guest is Mr. Richard Koo
S: China is following the same idea by spending huge sums of money as well as nurturing domestic demand, isn't that so?
K: Chinese people was actually the first people that drew attention to my concept of a balance sheet recession.
S: I didn't know that.
K: They were aware of the emergence of the bubble in stock and house prices from the beginning, which would, without doubt, result in a plunge in GDP rates, ruining the people's lives. However the current Chinese communist government has only one crucial mission to fulfill, that is, to raise the people's standard of living.
S: Yeah, I know what you mean.
K: They have ditched their faith in Communism and it's been decades since the Chinese Revolution. Besides it's not like the government were elected so the ruling party has only one way to survive, which is by boosting people's living standards and if this plummets following a bursting of the economic bubble, they would face a huge crisis.
S: So they must be filled with a profound sense of danger.
K: Beyond belief. So during their economic bubble, they have been extremely careful to take measures in order to prevent the bubble from bursting and tension has been a lot higher than that seen in the States or Japan. So they used all sorts of tricks and the fact that the post-bubble GDP rates of Japan have never dropped below their levels during the bubble, which I mentioned in a speech I delivered, attracted their attention more than anything. You see, maintaining their GDP rates is their lifeline, as it were and they were in desperate need of finding out how Japan did it. I wrote two books in English and both of them were translated into Chinese with one of them becoming a bestseller. Those books helped the Chinese people realise that it's only government spending that works in times of recession like the present and China is the only country that has analyzed the Japanese case to the extent of really understanding what has been going on.
S: I feel that the current party leaders in China are very skilled at handling the economy without having to resort to arguments of emotion, religion or ideology and have an excellent social balance. Do you think so, too?
K: Well, since throwing out communism, it hasn't been too long since they started running a capitalist system so China is still a blank slate and willing to accept anything that is good for China. Another thing I'd like to note here is that there is no opposition party in China. This makes a huge difference and as a lot of people would define an opposition party as a party that objects to the ruling party, on the basis of this supposition, if the ruling party suggests government spending, the opposition party would have to oppose their proposal.
S: Like what with Republican opposition in America.
K: Yeah you're right. In America, even the $700 billion financial bailout package finally got passed with the help of votes from the opposing Democratic Party, I mean President Bush finally gave the OK. So the problem caused by the balance of power between parties doesn't exist in China, if they can be led by right people and measures, they can achieve things sooner than any other country.
S: I guess this might be due to the lack of information available to them but Chinese people seem to be consuming comfortably without feeling insecure because the media is assuring them of their safety.
K: Well, whether or not Chinese people actually believe what the government say is an entirely different matter as the Chinese public is famous for their unchanging attitude toward the government so in this sense, Chinese people are a lot harder to deal with than the Japanese. For a very long time, China has been going through numerous political changes and therefore I think that the government needs to openly govern because words alone or control of information perhaps won't work. Besides the 4 trillion yuan stimulus package is bearing fruit in a way everyone can see which changes the public's opinion of the government in a good way.
S: So, the Chinese government is really up for the challenge.
K: Exactly, it's not just empty promises. This kind of public faith is particularly important for the Chinese government.
S: Put simply, I'm sure the booming economy in China will help Japan to pick up, don't you think?
K: Seeing that China is a bigger trade partner than America for Japan, I obviously agree with you and China has made that obvious to America, so economic recovery, in the true sense of the term, that is, prices getting back to the levels they were at before the economic crisis, won't happen unless America springs back to life as well.
Radio Nippon presents, “Sugahara Akiko’s EDGE TALK” Part6 Guest is Mr. Richard Koo
S: In your book, you showed great concern for the future of Japan because if there were to be a second wave of economic trouble to come, the current trend of people thinking it's best to play it safe by pursuing an elite career path by studying hard or other ways and setting themselves up somewhere where they don't have to worry about global issues does us no good when it comes to compete with those really sturdy Chinese people who can think from various perspectives or foreign powers and this problem itself is a major issue. Have you got anything to say about this?
K: I think in the end it all comes down to what makes a developed country. In a developing country, there are already enough things to work on and sort out so they don't need to come up with new ideas, for example they focus on things like how to produce things more cheaply or make products of higher quality than everyone else which makes their economy grow. However when things like that have been done for a long time and the country becomes a developed country, you need to start thinking of something new instead of doing the same old stuff. In a situation like this, you need to change the role of education and everything. We put great emphasis on developing a massive, skilled workforce and further improving foreign innovations to sell on, but from now on, creating something completely new from nothing, for which we need to develop people who can think outside of the box. Well I studied at an American University and compared to how things are in America, I feel there is still room for improvement in Japan. This might be particularly true of Americans but in America, people discuss things with everyone and those with different ideas get valued. For example, in a conference, if you don't give your opinions, you won't be invited to their next conference whereas in Japan, everyone says nothing so things are very different. Therefore I think Japanese people need to realise the importance of sharing different ideas and perspectives as Japan has already become a developed country.
S: In that sense, considering the fact that Japan is still a male-dominated society and companies and people only think in one direction, it's true that Japan still has a long way to go.
K: Well Japan still does have that side but I think there's another side to it, which is extremely honest and tries to face up to facts. What I find so unique about Japan is that there's one side of people that lets the press dictate their opinions like drones but whatever the press says, there's always some people that see through it. During the 5-year Koizumi administration, I didn't make a TV appearance.
S: No, you didn't. We couldn't see you for a long time.
K: And I thought I would be long forgotten after five years, well that's what people say here in Japan, if you don't appear on TV, you get forgotten. But at seminars organized by the Nomura securities company or other organizations, I noticed that the numbers of people in my audiences have never declined. The numbers have only got bigger and bigger.
S: So the public has got an instinctive ability to understand what is good and cast aside what is bad.
K: Absolutely. The ever-growing audiences made me wonder a lot over the five years and I figured out that there are many people in Japan who do have a sense of perspective and I think making the voices of these people heard would help correct policies and eventually enable various things to happen with less cost to Japan.
S: How old are those people that come to listen to you?
K: Well, the people who come to seminars held by the Nomura securities company are those with a decent amount of assets so they tend to be older but at Waseda University where I've been working as a visiting scholar, I see many students who have never seen me on TV in the past five years but they do keep coming to listen which makes me think that Japan having these two sides is what has enabled us to come this far. Come to think of it, our country that has no resources and was one of the poorest countries in the world a few hundred years ago has come to have the second highest GNP in the world. This couldn't have happened just by copying the West. I reckon there must be a vast number of people who really can grasp what's going on.
S: This might sound repetitive after what you've just said, but it's indeed important to think for yourself and as a first step towards that, you can buy yourself a book to study from. I really think your book is excellent.
K: Thank you very much.
S: I'd strongly recommend everyone to read The two waves threatening Japan's economy and although it's been one year since it's publication, the content itself is not really old and the message of this book is to never just accept what you read or see in the press and and people of all ages who can think for themselves will support the future of Japan. Thank you for your time.
