Bill Emmott
Bill Emmott - Internationbal Author & Adviser

Local Powerhouses in a Global Economy

Keizai Doyukai Annual Seminar, april 14th 2016


IT IS A GREAT HONOUR FOR ME TO BE INVITED TO CoNTRIBUTE TO THIS 29TH ANNUAL SEMINAR FOR KEIZAI DOYUKAI, AN ORGANISATION WITH WHICH I HAVE HAD FRIENDLY AND INTERESTING CONTACTS FOR MANY YEARS.

I AM ALSO DELIGHTED AND HONOURED TO TAKE PART IN THIS SEMINAR IN OKAYAMA, AS I HAVE THE PRIVILEGE TO BE A VISITING PROFESSOR AT SHUJITSU GAKUEN IN THIS CITY, AND SO HAVE BEEN VISITING HERE REGULARLY FOR THE PAST TWO YEARS.

WE ARE MEETING HERE IN OKAYAMA AT A DIFFICULT TIME FOR THE GLOBAL ECONOMY AS A WHOLE, AND FOR JAPAN

WE ALL FACE MANY CHALLENGES. BUT IN FACING THOSE CHALLENGES WE SHOULD DRAW INSPIRATION FROM THE FACT THAT THE GREAT GENIUS OF OUR OPEN, DEMOCRATIC, MARKET-ORIENTED SOCIETIES HAS ALWAYS BEEN OUR ABILITY TO ADAPT TO CHANGING CIRCUMSTANCES.

THE DIFFERENCE BETWEEN THE OPEN SOCIETIES OF JAPAN AND THE WEST, AND CLOSED, AUTHORITARIAN, SOCIETIES LIES IN OUR ABILITY TO EVOLVE, TO REINVENT OURSELVES, TO USE NEW IDEAS TO CREATE NEW FUTURES.

CRUCIALLY, IN OUR OPEN SOCIETIES THOSE NEW FUTURES ARE CREATED FROM THE BOTTOM UP, FROM THE INITIATIVES AND ENERGIES OF COMPANIES, OF INDIVIDUALS, OF LOCAL GOVERNMENTS, OF UNIVERSITIES, OF ORGANISATIONS OF ALL KINDS, AND NOT FROM THE TOP DOWN, NOT FROM CENTRAL GOVERNMENT.

THE CORRECT SUMMARY OF HOW CHANGE IS CREATED CAME FROM KARL MARX, THE GERMAN ECONOMIST WHO IN SOME WAYS PERSONIFIED GLOBALISATION DURING THE 19TH CENTURY. BORN IN GERMANY, MARX WROTE MOST OF HIS GREATEST BOOKS WHILE LIVING IN LONDON. THE IDEAS OF KARL MARX THAT CONTRIBUTED TO COMMUNISM, THAT LAY BEHIND

THE CREATION OF TOP-DOWN, AUTHORITARIAN GOVERNMENTS IN RUSSIA AND CHINA, WHICH FAILED MISERABLY TO GENERATE SOCIAL AND ECONOMIC PROGRESS OR TO EVOLVE AND ADAPT, WERE DISASTROUSLY WRONG.

BUT MARX NEVERTHELESS WAS RIGHT WHEN HE WROTE THE FOLLOWING:

Men make their own history, but they do not make it as they please; they do not make it under self-selected circumstances, but under circumstances existing already, given and transmitted from the past.

MEN, AND WOMEN, MAKE THEIR OWN HISTORY. WE CREATE EACH ERA OF ECONOMIC AND SOCIAL PROGRESS OURSELVES. BUT WE DO SO IN THE CONTEXT THAT THE WORLD GIVES US, IN THE CONTEXT OF THE TRENDS AND CHALLENGES OF TODAY AND YESTERDAY.

IT IS A STRANGE IRONY THAT MOST OF THE PEOPLE WHO CALLED THEMSELVES MARXISTS FAILED TO TAKE THIS ADVICE, BELIEVING THAT CENTRAL GOVERNMENT WAS THE REAL ENTITY THAT COULD MAKE HISTORY.

TODAY, IT IS IMPORTANT THAT WE RECOGNISE THAT HISTORY IS MADE, AND MUST BE MADE, NOT FROM THE TOP-DOWN, BY MEN SITTING IN PLANNING COMMITTEES IN KASUMIGASEKI OR AT THE TOP OF BIG COMPANIES IN TOKYO BUT FROM THE BOTTOM-UP, BY MEN AND WOMEN SITTING IN LOCAL CITIES, IN COMPANIES ALL OVER THE COUNTRY.

THOSE MEN AND WOMEN WILL NEED TO COLLABORATE WITH ONE ANOTHER. THEY NEED TO RECOGNISE THE CIRCUMSTANCES THAT SURROUND THEM, GIVEN AND TRANSMITTED, AS MARX SAID, BY THE PAST. BUT IT IS THEIR INITIATIVE, THEIR IDEAS, THEIR ENERGY WHICH WILL CREATE THE NEXT ERA FOR JAPAN.

SO IN THIS LECTURE, I WILL BEGIN BY ANALYSING THE CIRCUMSTANCES IN WHICH WE FIND OURSELVES, IN THE GLOBAL ECONOMY AND IN JAPAN. THEN I WILL OFFER SOME THOUGHTS ABOUT HOW THE NEXT ERA, THE NEXT REINVENTION, MIGHT BE DRIVEN BY MEN AND WOMEN MAKING THEIR OWN HISTORY ON THE BASIS OF LOCAL AND COMMUNITY INITIATIVES.

I WILL DRAW ON SOME EXPERIENCES OF LOCAL, COMMUNITY-BASED REINVENTION IN EUROPE TO ILLUSTRATE THE PRINCIPLES THAT SUCH LOCAL AND COMMUNITY-CENTRED REINVENTION MUST BE BASED ON.

ONE OF THOSE LOCAL EXPERIENCES IN EUROPE WILL BE FROM MANCHESTER, THE NORTHERN ENGLISH CITY WHICH PROVIDED MUCH OF THE INSPIRATION FOR KARL MARX AND HIS CO-AUTHOR FRIEDRICH ENGELS, WHEN THEY WROTE THEIR SEMINAL BOOK, THE COMMUNIST MANIFESTO, IN 1848.

FOR MANCHESTER WAS AT THE HEART OF THE INDUSTRIAL REVOLUTION IN 19TH CENTURY BRITAIN. NOW, LIKE MANY OTHER LOCAL CITIES AROUND THE ADVANCED COUNTRIES, IT IS TRYING TO REINVENT ITSELF.

ABOVE ALL, I WILL BE OPTIMISTIC. WE FACE MANY CHALLENGES. BUT OUR OPEN SOCIETIES ARE FULL OF AN ENERGETIC SPIRIT OF RENEWAL AND REINVENTION. THAT POSITIVE SPIRIT WILL, I AM SURE, ALSO BE FELT HERE IN OKAYAMA AT THIS SEMINAR.

CERTAINLY, THIS IS NOT AN EASY TIME FOR COMPANIES TRYING TO BUILD PROFITABLE BUSINESSES IN TODAY’S GLOBAL ECONOMIC ENVIRONMENT.

THE MAIN SOURCE OF GROWTH OVER THE PAST DECADE, NAMELY RISING INVESTMENT AND CONSUMER DEMAND IN CHINA AND OTHER NEWLY EMERGING ECONOMIES, HAS WEAKENED CONSIDERABLY.

CHINA FACES THE NEED FOR THE SAME SORT OF ECONOMIC TRANSFORMATION THAT JAPAN ACHIEVED DURING THE 1970S.

THEN, JAPAN SUCCEEDED IN CHANGING ITS MAIN ECONOMIC MODEL FROM ONE OF HIGH INVESTMENT, HEAVY, HIGHLY POLLUTING INDUSTRY, URBANISATION, A CHEAP YEN, AND LOW-TECHNOLOGY MANUFACTURING, TO ONE OF ENERGY-EFFICIENCY, CLEANER, HIGHER TECHNOLOGY PRODUCTION, WITH A GREATER ROLE FOR CONSUMER DEMAND.

 FOLLOWING THE OIL SHOCK AND THE SHARP REVALUATION OF THE YEN IN THE EARLY 1970S, JAPAN MOVED FROM THE ERA OF STEEL AND CHEMICALS TO ONE OF COMPACT CARS, SEMICONDUCTORS AND CONSUMER ELECTRONICS.

CHINA NEEDS TO DO THE SAME, CLEANING UP ITS ENVIRONMENT, MAKING ITS FINANCIAL SECTOR MORE EFFICIENT, EXPLOITING HIGHER TECHNOLOGIES AND ALLOWING MORE FREEDOM FOR THE PRIVATE SECTOR. SO FAR, HOWEVER, IT IS PROVING LESS FLEXIBLE, LESS ABLE TO CHANGE THAN JAPAN WAS.

OTHER EMERGING ECONOMIES, IN ASIA, LATIN AMERICA AND AFRICA, ARE SUFFERING FROM THE HUGE FALL IN OIL AND OTHER COMMODITIES PRICES DURING THE PAST TWO YEARS, AND FROM THEIR OWN POLITICAL PROBLEMS.

OF THE FAMOUS “BRICS” OF BRAZIL, RUSSIA, INDIA AND CHINA, ONLY INDIA CAN NOW BE SAID TO BE MOVING FORWARD WITH A HEALTHY ECONOMY. AND IT TOO IS FINDING IT DIFFICULT TO ACHIEVE REFORM.

BRAZIL IS FACING VERY SUBSTANTIAL POLITICAL PROBLEMS, WITH A HUGE CORRUPTION SCANDAL AND MOVES FOR THE IMPEACHMENT OF ITS PRESIDENT, MRS DILMA ROUSSEFF, EVEN WHILE IT IS PREPARING TO HOST THE 2016 OLYMPIC GAMES IN RIO DE JANEIRO THIS COMING SUMMER.

JAPAN IS I KNOW DETERMINED TO LEARN MANY LESSONS FROM THE 2016 OLYMPICS IN RIO, AND THE 2012 OLYMPICS IN LONDON IN ORDER TO MAKE THE 2020 OLYMPIC GAMES A GREAT SUCCESS. CERTAINLY, AVOIDING HUGE POLITICAL SCANDALS, AS IN BRAZIL TODAY, MUST BE ONE IMPORTANT LESSON.

MEANWHILE THE DEVELOPED WORLD, OF AMERICA AND EUROPE, IS EXPERIENCING MANY OF THE SAME ECONOMIC SYMPTOMS, SINCE THE BURSTING OF THEIR FINANCIAL BUBBLE IN 2008, THAT JAPAN HAS DONE OVER THE PAST 20 YEARS.

ECONOMIC GROWTH HAS RETURNED IN BOTH AMERICA AND EUROPE, BUT IT IS WEAKER AND MORE UNSTABLE THAN IT WAS DURING RECOVERIES FROM PREVIOUS RECESSIONS.

JOBS ARE BEING CREATED, BUT WAGES AND HOUSEHOLD INCOMES ARE NOT RISING VERY MUCH, WITH THE RESULT THAT CONSUMER DEMAND GROWTH IS WEAK.

COMPANIES ARE REDUCING DEBT, BUILDING CASH RESERVES AND BUYING BACK THEIR OWN SHARES, RATHER THAN INVESTING ENOUGH IN NEW FACTORIES, NEW PRODUCTS OR NEW IDEAS.

DEFLATION, A CYCLE OF FALLING PRICES AND WAGES, IS THE BIGGEST FEAR HELD BY POLICY-MAKERS IN EUROPE IN PARTICULAR. IN THE UNITED STATES, THE FEDERAL RESERVE BOARD IS KEEN TO RETURN ITS MONETARY POLICY TO A MORE NORMAL BASIS BY RAISING ITS OFFICIAL INTEREST RATES, BUT IS BEING DELAYED IN DOING SO BY WEAKNESS IN THE GLOBAL ECONOMY.

CENTRAL BANKS’ MONETARY POLICIES, IN EUROPE AND JAPAN ESPECIALLY, OF LOW OR EVEN NEGATIVE INTEREST RATES IN RESPONSE TO THIS WEAK DEMAND MEAN THAT THE NORMAL ROLE OF INTEREST RATES IN ALLOCATING CAPITAL AND PROVIDING FINANCIAL DISCIPLINE HAS GONE.

MEANWHILE, PRODUCTIVITY GROWTH IS LOW, BY HISTORICAL STANDARDS, DESPITE RAPID PROGRESS IN NEW TECHNOLOGIES. SO ALTHOUGH WE ARE ALL CARRYING IN OUR HANDS SMARTPHONES WITH COMPUTING POWER GREATER THAN WAS USED BY NASA IN THE MISSIONS TO THE MOON, THIS IS NOT BEING TRANSLATED INTO RISING PRODUCTIVITY AND GREATER VALUE-ADDED.

UNTIL PRODUCTIVITY GROWTH CAN BE RAISED, ON A BROAD NATION-WIDE BASIS, IT WILL NOT BE POSSIBLE FOR WAGES TO RISE SUBSTANTIALLY.

NORMALLY, GOVERNMENTS WOULD HELP TO RAISE DEMAND BY USING FISCAL EXPANSION. BUT OUR NATIONAL GOVERNMENTS ARE ALL BURDENED BY HUGE PUBLIC DEBTS AND ARE STRUGGLING TO KEEP CONTROL OF THEIR ANNUAL BUDGET DEFICITS.

JAPAN, WITH A NET PUBLIC DEBT EQUAL TO MORE THAN 120% OF GDP, HAS LIVED WITH THIS PROBLEM FOR LONGER THAN MOST COUNTRIES. BUT MANAGING IT IS NOT GETTING EASIER.

THE ABE ADMINISTRATION HAS SIMULTANEOUSLY PROMISED TO KEEP RAISING THE CONSUMPTION TAX NEXT YEAR, AND TO INTRODUCE SOME FORM OF FISCAL STIMULUS. THESE AIMS ARE CONTRADICTORY. SIMILAR DILEMMAS, BETWEEN CUTTING GOVERNMENT DEBTS AND SUPPORTING ECONOMIC GROWTH CAN BE SEEN ALSO IN AMERICA AND WESTERN EUROPE.

MY GUESS IS THAT JAPAN WILL SOON BECOME AN INNOVATOR IN A NEW WAY: BY ASKING THE BANK OF JAPAN TO GIVE MONEY DIRECTLY TO HOUSEHOLDS THROUGHOUT THE COUNTRY IN ORDER TO STIMULATE CONSUMPTION AND HELP PRICES TO RISE.

ECONOMISTS CALL THIS CONCEPT “HELICOPTER MONEY”, BECAUSE WHEN THE GREAT AMERICAN FREE MARKET ECONOMIST MILTON FRIEDMAN FIRST PROPOSED THE IDEA IN 1969 HE LIKENED THE IDEA TO THAT OF HAVING CENTRAL BANKS LOAD CASH INTO HELICOPTERS AND FLY OVER CITIES, DROPPING CASH FROM THE SKY.

WITH JAPANESE GOVERNMENT BOND YIELDS NOW NEGATIVE, AND WITH THE BANK OF JAPAN NOW BUYING ESSENTIALLY 100% OF ALL BOND ISSUES BY THE GOVERNMENT, AND SO FINANCING GOVERNMENT BORROWING DIRECTLY, HELICOPTER MONEY REALLY IS THE NEXT LOGICAL STEP.

LET US IMAGINE GOVERNOR KURODA FLYING HIS HELICOPTER OVER OKAYAMA SOME TIME SOON.

FOR I THINK IT WOULD BE FAIR TO SAY THAT SO FAR, THE RESULTS OF SO-CALLED “ABENOMICS” HAVE BEEN DISAPPOINTING.

OF THE THREE ARROWS, ONLY ONE, MONETARY POLICY, HAS BEEN USED CONSISTENTLY AND EFFECTIVELY. AND EVEN THAT HAS NOT SUCCEEDED IN ITS DECLARED AIM, NAMELY THE AIM OF DEFEATING DEFLATION AND ESTABLISHING POSITIVE EXPECTATIONS OF INFLATION.

THE FISCAL ARROW WAS USED BRIEFLY AND INITIALLY, BUT THEN THE ARROW BEGAN TO BE FIRED IN THE OPPOSITE DIRECTION, AND WITH THE RISE IN CONSUMPTION TAX IN 2014, FISCAL POLICY BECAME CONTRACTIONARY.

THE THIRD ARROW, OF STRUCTURAL REFORMS, HAS ACHIEVED SOME CHANGES, IN PARTICULAR IN ELECTRICITY MARKET DEREGULATION, SOME REFORMS IN AGRICULTURE, SOME IMPROVEMENTS IN CORPORATE GOVERNANCE, AND A STRONG INCREASE IN THE PARTICIPATION OF WOMEN IN THE LABOUR FORCE.

BUT THERE HAS SO FAR BEEN NO MAJOR INITIATIVE TO DEREGULATE MARKETS SUBSTANTIALLY. AND THERE HAS BEEN NO EFFORT TO REFORM LABOUR LAWS.

CURRENTLY, JAPAN’S DUAL LABOUR  SYSTEM, UNDER WHICH 60% OF THE WORKFORCE HAVE HIGHLY PROTECTED, PERMANENT CONTRACTS AND 40% ARE ON UN-PROTECTED, LOW PAY, PART-TIME AND IRREGULAR CONTRACTS, SERVES TO DEPRESS WAGES AND SO HOUSEHOLD INCOMES.

IT IS A SYSTEM OF DIFFERENT LEVELS OF LEGAL RIGHTS. AS SUCH IT IS  AN IMPORTANT SOURCE OF INEQUALITY

IT IS ALSO IN MY VIEW A MAJOR REASON WHY DESPITE JAPAN HAVING WHAT STATISTICIANS CALL A LABOUR SHORTAGE, WAGES AND SALARIES ARE NOT RISING.

COMPANIES ARE STILL GRADUALLY REDUCING THE NUMBER OF HIGHLY PAID REGULAR WORKERS, ESPECIALLY THROUGH RETIREMENT, AND REPLACING THEM WITH MORE PART-TIME AND IRREGULAR WORKERS.

THIS HAS A BENEFICIAL EFFECT ON LABOUR COSTS AND PROFITS.  BUT IT HAS DAMAGING EFFECTS ON HOUSEHOLD INCOMES AND CONSUMPTION. IN THE LONG TERM, IT IS ALSO DAMAGING PRODUCTIVITY AS IRREGULAR WORKERS RECEIVE LESS TRAINING, ACCUMULATE FEWER SKILLS, AND SO ACHIEVE LOWER LEVELS OF PRODUCTIVITY.

IN MY OPINION, THE JAPANESE GOVERNMENT SHOULD MOVE TO EXPLOIT THE CURRENT SITUATION OF LABOUR SHORTAGE AND FULL EMPLOYMENT BY REFORMING THE LABOUR LAWS. THE EXISTING DUAL LABOUR SYSTEM NEEDS TO BE REPLACED WITH A SINGLE SET OF LEGAL RIGHTS FOR  LABOUR AND A SINGLE LABOUR CONTRACT.

THIS COULD BE A LABOUR CONTRACT THAT GRANTS LEVELS OF JOB SECURITY AND BENEFITS THAT GRADUALLY INCREASE THE LONGER AN EMPLOYEE STAYS AT HIS OR HER COMPANY.

IN MAKING THIS PROPOSAL, I SHOULD ACKNOWLEDGE, HOWEVER, THAT DESPITE WEAK HOUSEHOLD INCOMES AND DEPRESSED LEVELS OF DEMAND, JAPAN HAS SUCCEEDED BETTER THAN MANY COUNTRIES IN DEALING WITH ITS AGEING DEMOGRAPHY.

AS THE CHART IN YOUR HANDOUTS INDICATES, ALL OF OUR COUNTRIES ARE EXPERIENCING AGEING POPULATIONS. THE MEDIAN, OR AVERAGE, AGE IS RISING IN ALL OUR COUNTRIES.

FOR ALL OF US, RISING HEALTH AND PENSION COSTS AS POPULATIONS AGE ARE MAKING IT HARDER TO AFFORD  OTHER FORMS OF GOVERNMENT SPENDING, INCLUDING CAPITAL INVESTMENT IN INFRASTRUCTURE. POPULATION NUMBERS ARE BEGINNING TO DECLINE IN GERMANY, JUST AS THEY HAVE BEEN FOR SEVERAL YEARS IN JAPAN.

WHERE JAPAN SHOULD BE CONGRATULATED IS IN ITS SUCCESS NOT JUST IN ENCOURAGING WOMEN TO JOIN THE WORKFORCE BUT ALSO IN MAKING IT POSSIBLE FOR RETIRED PEOPLE, OVER THE AGE OF 65, TO REJOIN THE WORK-FORCE.

AS THE CHART  IN THE HANDOUT SHOWS, JAPAN HAS NOW OVERTAKEN THE UNITED STATES IN TERMS OF THE LEVEL OF PARTICIPATION IN THE LABOUR FORCE OF WOMEN. THE DARKER LINE SHOWING JAPANESE LABOUR PARTICIPATION HAS OVERTAKEN THE LINE FOR THE USA.

AND JAPAN IS AHEAD OF THE US AND ALL EUROPEAN COUNTRIES IN TERMS OF THE SHARE OF OVER-65S WHO ARE IN WORK: NEARLY 20% OF JAPANESE OVER-65S WORK, SECOND ONLY TO YOUR NEIGHBOURS IN SOUTH KOREA. THIS IS FAR HIGHER THAN LEVELS IN EUROPE, WHICH CAN BE AS LOW AS 4-5%.

MOREOVER, ALTHOUGH JAPAN’S WORKING AGE POPULATION ON THE TRADITIONAL DEFINITION OF AGES BETWEEN 15 AND 64 HAS BEEN DECLINING QUITE RAPIDLY. THE ACTUAL NUMBER OF PEOPLE IN YOUR POPULATION THAT ARE IN EMPLOYMENT HAS REMAINED QUITE STABLE, WITH MORE ELDERLY AND FEMALE WORKERS JOINING UP.

SO I CONGRATULATE JAPAN ON THIS ACHIEVEMENT, WHICH IS A FINE LESSON FOR ALL OF US IN EUROPE.

MEMBERS OF THE KEIZAI DOYUKAI, AS I HAVE SAID, THESE ARE DIFFICULT TIMES IN THE GLOBAL ECONOMY.

GROWTH IS SLOW. EMERGING ECONOMIES ARE NO LONGER BOOMING. THE FALL IN OIL PRICES IS GOOD FOR US CONSUMERS OF ENERGY, BUT IT HURTS PRODUCERS. PRODUCTIVITY GROWTH IS SLOW. PUBLIC FINANCES ARE HEAVILY IN DEBT. AGEING POPULATIONS ARE ADDING TO FINANCIAL BURDENS AS WELL AS POTENTIALLY REDUCING PRODUCTIVITY.

JAPAN HAS ADAPTED WELL IN SOME RESPECTS, BUT IT IS NOT DOING WELL ENOUGH IN TERMS OF PRODUCTIVITY, INCOME GROWTH, CREATIVE INDUSTRIES OR INNOVATION.

IT IS 100% CLEAR THAT NEITHER IN JAPAN NOR IN EUROPE CAN COMPANIES AND COMMUNITIES RELY ON CENTRAL GOVERNMENTS TO SOLVE THEIR PROBLEMS, TO CREATE THE NEW FUTURES THAT WILL DEFINE THE COMING DECADES.

THEY LACK THE RESOURCES

THEY LACK THE CREATIVITY NEEDED IN TODAY’S TECHNOLOGICAL AGE

THEY ARE INEVITABLY NOT EQUIPPED TO CONTROL OR DIRECT TODAY’S KNOWLEDGE ECONOMY, ONE IN WHICH IDEAS AND SERVICES DOMINATE.

CENTRAL GOVERNMENTS CANNOT DIRECT GROWTH IN TODAY’S AND TOMORROW’S CIRCUMSTANCES.

SO OTHER SOLUTIONS MUST BE FOUND. MEN AND WOMEN MAKE THEIR OWN HISTORY, AS KARL MARX SAID. IT IS TIME TO CREATE NEW AND BETTER FUTURES, AT LOCAL LEVEL.

THIS MAKES SENSE, AND HAS VERY HIGH POTENTIAL, FOR SEVERAL REASONS.

THE FIRST REASON IS THAT JAPAN, LIKE MY COUNTRY OF BRITAIN, IS TOO HEAVILY CENTRALISED, TOO DOMINATED BY TOKYO JUST AS BRITAIN IS DOMINATED BY LONDON.

BOTH TOKYO AND LONDON ARE GREAT INTERNATIONAL CITIES. BUT TOO MUCH CENTRALISATION ALSO CREATES COSTS THAT ARE TOO HIGH, FOR HOUSING, OFFICES, INFRASTRUCTURE, EVEN FOR TOURISM. CROWDS ARE EXCESSIVE AND DISCOURAGING.

THIS LEAVES MANY GREAT ASSETS IN OTHER PARTS OF THE COUNTRY UNDER-EXPLOITED, WHICH REPRESENTS AN ECONOMIC OPPORTUNITY.  IT IS TIME TO SEIZE THAT OPPORTUNITY.

THE INTELLIGENCE, ENERGY, CREATIVITY, KNOWLEDGE, IDEAS, HISTORY, CULTURE OF LOCAL CITIES AND LOCAL COMMUNITIES ARE ASSETS THAT ARE UNDERVALUED.

THE SECOND REASON IS THAT THE 21ST CENTURY IS CLEARLY GOING TO BE A CENTURY DOMINATED BY KNOWLEDGE, BY BRAINS AND NOT PHYSICAL STRENGTH, BY EDUCATION AND INGENUITY AND CREATIVITY.

GREAT UNIVERSITIES OF COURSE EXIST IN CAPITAL CITIES, AS THEY DO IN BOTH LONDON AND TOKYO, BUT THEY ARE ALSO DISTRIBUTED ALL OVER THE COUNTRY, IN SMALLER LESS CROWDED AND LESS COSTLY COMMUNITIES.

HARVARD IS IN CAMBRIDGE, MASSACHUSETTS. STANFORD IS IN PALO ALTO. OXFORD AND CAMBRIDGE ARE BOTH IN SMALL TOWNS OUT IN THE ENGLISH COUNTRYSIDE.

EDUCATION AND UNIVERSITY RESEARCH ARE LOCAL ASSETS, NOT ASSETS JUST OF CAPITAL CITIES. THEY ARE THE NUCLEI OF THE KNOWLEDGE ECONOMY.

THE THIRD REASON IS THAT CITIES OF ALL SIZES ARE, AND WILL REMAIN, THE MOST PRODUCTIVE CENTRES IN ALL OUR COUNTRIES. DESPITE PREDICTIONS THAT “THE WORLD IS FLAT” OR THAT WE WOULD ALL IN FUTURE BE ABLE TO WORK FROM HOME OR A BEACH ON AN ISLAND IN THE RYUKYUS, THE REALITY IS THAT PEOPLE ARE SOCIAL ANIMALS, THAT CREATIVITY COMES FROM INTERACTION BETWEEN PEOPLE, THAT LIVING NEAR OTHER PEOPLE IS MORE FUN, AND THAT CITIES ARE THE MOST EFFICIENT WAY OF LIFE IN ECOLOGICAL TERMS.

ECONOMIC GROWTH IS DEPENDENT ON RESOURCES AND IDEAS BEING ACCUMULATED, BEING ADDED UP TOGETHER TO CREATE SOMETHING THAT IS WORTH MORE THAN ALL THE INGREDIENTS ARE WORTH ON THEIR OWN. THAT AGGLOMERATION TAKES PLACE MOST EFFECTIVELY IN CITIES.

SO THE FUTURE OF OUR ECONOMIES LIES IN CITIES. BUT NOT ALL CITIES ARE CURRENTLY ABLE TO FLOURISH. WHY NOT? WHAT IS IT THAT CAN TURN A DECLINING CITY OR URBAN REGION INTO A FLOURISHING ONE?

THAT IS THE QUESTION THAT IS BEING ADDRESSED BY THIS ANNUAL SEMINAR. I LOOK FORWARD TO LEARNING THE ANSWERS THAT YOU COME UP WITH. I WOULD JUST LIKE TO CITE TWO EXAMPLES FROM EUROPE AND MY EXPERIENCE THAT MIGHT CONTRIBUTE TO THAT TASK.

THE FIRST EXAMPLE IS THAT OF THE REGION OF TURIN, THE INDUSTRIAL CITY IN NORTH-WEST ITALY THAT IS BEST KNOWN OVER RECENT DECADES AS THE HOME OF THE FIAT CAR COMPANY. IT WAS THE NAGOYA OR DETROIT OF ITALY.

YET ALSO, IN THE 1860S AT THE SAME TIME AS THE MEIJI RESTORATION, TURIN WAS THE HISTORICAL CAPITAL OF THE NEWLY UNIFIED ITALY. THE ROYAL FAMILY RESIDENT IN TURIN BECAME THE ROYAL FAMILY OF THE NEW ITALY. 

TURIN’S CAR COMPANY, FIAT, WAS A GREAT PIONEER IN EUROPEAN CARMAKING ESPECIALLY FROM THE 1930S ONWARDS. ITS MAIN FACTORY IN TURIN HAD A FAMOUS TEST-TRACK ON ITS ROOF. THAT TEST-TRACK APPEARED IN MANY MOVIES, INCLUDING A 1960S BRITISH FILM CALLED “THE ITALIAN JOB”.

AND 100 YEARS AGO TURIN WAS THE BIRTHPLACE OF ITALIAN CINEMA, THE CREATIVE HUB FOR THE THEN NEW BUSINESS OF MOVIES.

BY THE EARLY 1990S, HOWEVER, TURIN WAS IN SEVERE TROUBLE.

THE CITY WAS HEAVILY IN DEBT.

THE ITALIAN CAR INDUSTRY WAS IN DEEP DECLINE, UNABLE TO COMPETE IN A NEWLY UNIFIED EUROPEAN MARKET

THE LOCAL AUTHORITIES GOVERNING THE CITY, THE PROVINCE AROUND TURIN, AND THE PREFECTURE OF PIEDMONT IN WHICH IT SITS WERE DIVIDED AMONG EACH OTHER.

TURIN DID NOT APPEAR IN INTERNATIONAL TOURIST GUIDEBOOKS, NOR DID IT FEATURE ON TOURS FOR FOREIGN GROUPS. THE CITY WAS CONSIDERED DIRTY AND DULL. IT WAS OVERSHADOWED BY MILAN, JUST ONE HOUR AWAY.

A NEW MAYOR WAS ELECTED IN 1993, AN ENGINEER WHO CAME FROM OUTSIDE MAINSTREAM POLITICS, CALLED VALENTINO CASTELLANI. HE BEGAN WHAT BECAME A 15-YEAR STRATEGY TO REINVIGORATE TURIN, TO HELP IT CREATE ITS OWN NEW FUTURE.

THE ELEMENTS OF THE STRATEGY WERE:

1.    FORM A CONSENSUS AMONG THE OVERLAPPING LOCAL AUTHORITIES FOR CITY, PROVINCE AND REGION

2.    BUILD SUPPORT FROM BUSINESS GROUPS, TRADE UNIONS AND COMMUNITIES

3.    MAKE INFRASTRUCTURE IMPROVEMENTS, BOTH INSIDE TURIN AND IN THE CITY’S LINKS TO OTHER REGIONS, THE MAIN FOCUS OF THE STRATEGY

4.    CLEAN UP THE APPEARANCE OF THE CITY CENTRE, RESTORING HISTORIC BUILDINGS AND RE-LOCATING CAR PARKS

5.    MAKE THE CITY’S TWO BIG UNIVERSITIES – POLITECNICO DI TORINO (AN ENGINEERING UNIVERSITY) AND UNIVERSITY OF TURIN – HUBS FOR NEW BUSINESS AND COLLABORATIVE RESEARCH WITH PRIVATE COMPANIES

6.    BID TO HOST THE WINTER OLYMPICS IN 2006, IN ORDER TO PUT TURIN ON THE INTERNATIONAL TOURISM MAP AND CHANGE THE IMAGE OF THE CITY

7.    INVEST IN OTHER CULTURAL ATTRACTIONS, SUCH AS A NEW NATIONAL MUSEUM OF CINEMA

NOW, IN 2015, TURIN IS A TRANSFORMED AND RE-ENERGISED CITY. WHAT WAS THE ESSENCE OF THE STRATEGY?

1.    COLLABORATION BETWEEN LOCAL AUTHORITIES AND LOCAL BUSINESS GROUPS

2.    A FOCUS ON INFRASTRUCTURE

3.    A FOCUS ON EDUCATIONAL INSTITUTIONS

4.    A FOCUS ON MAKING TURIN A MORE ATTRACTIVE PLACE TO LIVE AND TO VISIT

5.    A NEW, MORE POSITIVE, IMAGE FOR TURIN

MY SECOND EXAMPLE IS IN MY OWN COUNTRY, OF BRITAIN. THIS EXAMPLE IS A LITTLE DIFFERENT, AS IT DOES INVOLVE THE NATIONAL GOVERNMENT AS WELL AS LOCAL GOVERNMENT AND LOCAL BUSINESS GROUPS.

THE EXAMPLE IS IN THE LARGE REGION AROUND MANCHESTER, THE CITY IN NORTH-WEST BRITAIN WHICH COULD BE CONSIDERED THE OSAKA OF OUR COUNTRY.

OUR GOVERNMENT HAS A STRATEGY WHICH IT CALLS “THE NORTHERN POWERHOUSE STRATEGY”. ITS AIM IS TO FACILITATE FASTER GROWTH IN A COLLECTION OF OLD INDUSTRIAL CITIES AROUND MANCHESTER.

MANCHESTER, HISTORICALLY, WAS THE COMMERCIAL CENTRE OF BRITAIN, AS WELL AS A BASE OF SCIENTIFIC RESEARCH AND INNOVATION. THAT IS WHAT THE STRATEGY IS AIMED AT RESTORING.

THE STRATEGY IS BEING LED, IN FACT, BY THE FORMER CHIEF ECONOMIST OF GOLDMAN SACHS, THE MAN FAMOUS FOR HAVING INVENTED THE TERM “BRICS” AND THE IDEA THAT BRAZIL, RUSSIA, INDIA AND CHINA WERE GOING TO LEAD GLOBAL ECONOMIC GROWTH. HIS NAME IS JIM O’NEILL, HE WAS BORN IN MANCHESTER, AND HE IS NOW A MEMBER OF OUR UPPER HOUSE, THE HOUSE OF LORDS.

THE STRATEGY HAS ONLY JUST BEEN LAUNCHED, BUT ITS ESSENTIAL INGREDIENTS ARE THESE:

1.    COLLABORATION BETWEEN DIFFERENT LOCAL AUTHORITIES – PARTLY BY MERGING THEM TOGETHER INTO ONE LARGER BODY

2.    INVESTMENT IN INFRASTRUCTURE, NEW HIGH-SPEED RAILWAYS THAT WILL IMPROVE CONNECTIONS BETWEEN THE MANCHESTER REGION AND LONDON, BUT ALSO, CRUCIALLY, IMPROVE CONNECTIONS WITH OTHER NORTHERN CITIES

3.    A FOCUS ON SCIENTIFIC RESEARCH AND UNIVERSITIES, INCLUDING A NEW SPECIALISED INSTITUTE FOR GRAPHENE. THIS IS THE WONDER MATERIAL, A FORM OF CARBON, BASED ON THE SAME MATERIAL THAT ACTS AS THE LEAD IN PENCILS. IT IS THE STRONGEST MATERIAL KNOWN TO MAN, EVEN IN VERY THIN SHEETS. IT IS SAID THAT IT IS STRONG ENOUGH TO HOLD AN ELEPHANT, BUT DOUBT WHETHER ANYONE HAS ACTUALLY TRIED.

GRAPHENE WAS DISCOVERED IN MANCHESTER A DECADE AGO BY A TEAM OF FOREIGN SCIENTISTS WHO WON THE NOBEL PRIZE FOR IT IN 2010. THE SCIENTISTS WERE ORIGINALLY FROM RUSSIA AND THE NETHERLANDS. NOW, COMPANIES ALL OVER THE WORLD ARE HUNTING FOR COMMERCIAL APPLICATIONS OF GRAPHENE.

THE GREATER MANCHESTER REGION IS ALREADY ONE OF BRITAIN’S BIGGEST ECONOMIC REGIONS. BUT IT IS FAR BEHIND LONDON IN TERMS OF ECONOMIC GROWTH AND PROSPERITY.  IT IS FAR MORE PROSPEROUS THAN NOTHERN IRELAND, FOR EXAMPLE, OF OTHER SUBSIDISED REGIONS SUCH AS WALES.

AND IT IS KNOWN CHIEFLY AS A FAMOUS CENTRE OF FOOTBALL, FOR THE TEAMS OF MANCHESTER UNITED AND MANCHESTER CITY, RATHER THAN FOR ITS WIDER SCIENTIFIC AND CULTURAL ASSETS. THE AIM IS TO CHANGE THAT IMAGE.

THESE ARE JUST TWO EXAMPLES, FROM EUROPE. THERE ARE OTHERS, INCLUDING THE REVITALISATION OF BARCELONA IN SPAIN OVER THE PAST 20 YEARS, AND THE VERY CREATIVE INTERACTION BETWEEN THE COPENHAGEN, THE CAPITAL OF DENMARK, AND MALMO, THE SWEDISH CITY THAT LIES ACROSS A LONG BRIDGE OVER THE SEA BETWEEN THOSE TWO COUNTRIES.

WHAT ARE THE CONCLUSIONS, THE LESSONS FOR OKAYAMA AND FOR OTHER REGIONS IN JAPAN?

I THINK THERE ARE SEVERAL:

1.    COLLABORATION BETWEEN ADJACENT LOCAL AUTHORITIES IS VITAL. THE ECONOMIC DEFINITION OF A REGION IS DIFFERENT FROM THE HISTORICAL POLITICAL DEFINITION.

2.    EDUCATION AND RESEARCH INSTITUTIONS ARE A VITAL ASSET, BECAUSE THEY ATTRACT NEW IDEAS AND YOUNG PEOPLE, AND CAN COLLABORATE WITH PRIVATE BUSINESS AND START-UPS

3.    OPENNESS TO OUTSIDERS, INCLUDING FOREIGNERS, IS VALUABLE: IT CAN BRING IN INCOME, CAPITAL, IDEAS, CONNECTIONS

4.    INFRASTRUCTURE, INCLUDING THE BASIC ATTRACTIVENESS OF A REGION AS A PLACE TO LIVE AND WORK IN, IS ESSENTIAL. IT IS NOT JUST ROADS, RAIL AND PORTS – IT IS ALSO QUALITY OF LIFE, CULTURE, ENVIRONMENT

5.    BRANDING AND IMAGE ARE CRUCIAL – BUT THEY ARE NOT ENOUGH. THE UNDERLYING REALITY MUST CHANGE FIRST. THEN THE IMAGE CAN BE MARKETED.

6.    TOURISM AND CULTURAL ATTRACTIONS ARE POWERFUL WAYS TO MAKE A CITY FEEL ATTRACTIVE AND MAKE IT BETTER KNOWN.

7.    TODAY, KNOWLEDGE, CREATIVITY, SERVICE, OMOTENASHI, ARE ALL THE BASIC INGREDIENTS OF GROWTH AND SUCCESS.

THAT LAST POINT IS CRUCIAL. IT REFLECTS THE INSIGHT THAT THE GREAT AUSTRIAN-AMERICAN WRITER PETER DRUCKER FIRST PRODUCED IN 1957: THAT KNOWLEDGE IS THE MOST IMPORTANT RESOURCE IN THE MODERN ECONOMY.

I AM PROUD TO SAY THAT MORE THAN FOUR DECADES LATER, IN 2001, I ASKED PETER DRUCKER, WHO BY THEN WAS 92 YEARS OLD, TO WRITE AN ESSAY FOR THE ECONOMIST. HE CALLED HIS ESSAY “THE NEXT SOCIETY”. EVEN IN HIS 90S, DRUCKER WAS ALWAYS THINKING AHEAD, THINKING ABOUT THE FUTURE.

IN THAT ESSAY, HE SAID THE FOLLOWING:

The next society will be a knowledge society. Knowledge will be its key resource, and knowledge workers will be the dominant group in its workforce.

HE WENT ON TO SAY THAT  THE THREE MAIN CHARACTERISTICS OF THE KNOWLEDGE SOCIETY WILL BE:

•BORDERLESSNESS, BECAUSE KNOWLEDGE TRAVELS EVEN MORE EFFORTLESSLY THAN MONEY.

•UPWARD MOBILITY, AVAILABLE TO EVERYONE THROUGH EASILY ACQUIRED FORMAL EDUCATION.

•THE POTENTIAL FOR FAILURE AS WELL AS SUCCESS. ANYONE CAN ACQUIRE THE “MEANS OF PRODUCTION”, IE, THE KNOWLEDGE REQUIRED FOR THE JOB, BUT NOT EVERYONE CAN WIN.

NOT EVERYONE CAN WIN. BUT EVERYONE CAN AND WILL COMPETE, AND EVERYONE CAN ACQUIRE THE KNOWLEDGE NEEDED TO COMPETE. EDUCATION, TRAINING, HUMAN CAPITAL: THOSE ARE THE KEY.

HERE, IN OKAYAMA, A CITY CONTAINING 17 UNIVERSITIES, THAT IS AN IMPORTANT AND INSPIRING POINT.

FOR THE FINAL, THE MOST BASIC REALITY IS THIS. THE FUTURE WILL BE CREATED BY YOU, AT LOCAL LEVEL, IN YOUR CITIES, YOUR BUSINESSES, YOUR COMMUNITIES.

GOOD LUCK. GANBATTE KUDASAI.

 

THANK YOU FOR LISTENING

 




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