Naomi Fink:”Heterogeneity in Japanese TFP, Part 2: Regulation, Capital Allocation, and TFP in Japan”

Columbia University Academic Commons

This second essay by Naomi Fink make its points very clear: (a) overcoming deflation alone will not solve Japan’s economic problems; (b) deregulation of the services sector, and increased innovation will be necessary to increase total productivity.  This is exactly the same conclusion reached by Professors Kyoji Fukao, Hyeog Ug Kwon and Robert Eberhart (from Hitotsubashi University and Stanford University) in the analysis they did that supported the American Chamber in Japan’s “Growth Strategy White Paper” – Charting a New Course for Growth ~ Recommendations for Japan’s Leaders . I am proud to say that this analysis and the White Paper had a profound impact on Japanese economic policy, and indeed, formed the basis of Abenomics “third arrow”. I only hope the government does not lose the momentum that it has started.    – Nicholas Benes

Naomi Fink:”Heterogeneity in Japanese TFP, Part 1: Why Overcoming Deflation Alone is Not Enough”

Columbia University Academic Commons

Insightful analysis from Naomi Fink. The sectors with the slowest TFP grown did not show the deepest or most consistent negative deflation. Instead, the most deflationary sectors were out-performers in terms of TFP: manufacturing and IT.  The problem is, many of those companies are globalizing and investing offshore (instead of in Japan) precisely because they have the wherewithal and competitiveness to do so.  I would think there is a connection here.   –  Nicholas Benes

”Corporate governance report card”

”Japanese companies appear to be steadily implementing the corporate governance code introduced by the Tokyo Stock Exchange a year ago, at least in form. Of the 2,018 firms listed on the first and second sections of the TSE, 78 percent say they are now in compliance with at least 90 percent of the principles set […]

”Arora’s departure shakes SoftBank’s global strategy”

 

”Arora also assembled a reliable, well-connected team of assistants and advisers within SoftBank. A weekly conference call connecting members of “Team Nikesh” in Tokyo, London, India and on the U.S. West Coast to their leader to discuss possible investments has become established practice — an arena for information to be brought in from around the world, and the merits of promising ventures debated.

One of SoftBank’s early — and often talked about — investments is Chinese e-commerce giant Alibaba Group Holding. Son funded Alibaba with 2 billion yen ($19 million at current rates) out of a fondness for founder Jack Ma, who was unknown at the time. That stake has yielded some 10 trillion yen in latent gains 14 years later. Though Son is famed for his sharp foresight, what lurks behind his investment decisions is “something akin to a hobby,” he has said. “It’s produced success on occasion, but quite a few failures as well.”

IMF Official in Interview: ”Japan must take Abenomics even further”

”A: The decision makes sense in light of the pace of growth in the country and the pace of growth in the global economy. At the same time, I think it’s important that attention be put on securing sustainable public financing in the long run. I think a postponement makes sense because the economy needs fiscal support rather than fiscal contraction right now. But at the same time, we would like to see a redesign of the consumption tax, where it’s introduced with increases coming in small percentages every year in the regular way, so that the decision is not political. It’s automatic, so that the effects aren’t so big, so that the growth needs of the economy can be taken care of.

But we certainly agree that the amount of public debt will need to be brought down. Getting to a primary balance is an important goal. [Japan needs to] continue to make progress in consolidation and make sure that public financing is made sustainable.

”How are Japanese companies becoming better stewards of capital? Improving corporate governance”

Japanese corporate profits are way up, even if real GDP is not.

”If you were to use just one measure, such as real GDP, to assess how Prime Minister Shinzo Abe was performing, you would conclude his policies are clearly not working: real GDP itself is flat to slightly negative since he took office.

On the other hand, if you look at the aggregate operating profit of Tokyo Stock Exchange Price index constituents as a reflection of corporate profits, it has grown more than 60% since he took office.

Corporate Governance Articles in the Newsletter of the Institute of Social Research, University of Tokyo, March 2016

Corporate Governance

”Social Science Japan newsletter 54 takes up where it left off last issue and continues to explore the theme of governance. This time, the focus is on corporate governance. Six ISS scholars discuss the topic from various angles.

Tanaka Wataru summarizes the ISS research project and the book that inspired this issue’s featured theme. He explains what corporate governance entails and the history of its transformation in Japan. Cato Susumu analyses the dynamics of the wage structure in firms and shows how firm-specific human capital affects wages under a seniority system. Focusing on middle managers as actors in corporate governance, Owan Hideo looks at how they affect firm productivity and what measure can be used to evaluate their performance. Sasaki Dan highlights the concurrent passage, in 2014, of amendments to corporate and school educational law and argues that the reforms have reduced autonomy and increased externally-imposed or topdown control. He raises concerns about the consequences of mandating the inclusion of “neutral,” external members to the executive boards of large corporations. Nakamura Naofumi and Nakabayashi Masaki explore corporate governance in its historical context.

Association of Chartered Certified Accountants: ”Asia’s Corporate Governance Journey Gathers Momentum”

Asia in general has seen significant improvement in corporate governance practices and standards over the past 10 years, even if there is much room for further improvement, as is described in this insightful article by the Association of Chartered Certified Accountants (ACCA) referred to below.  The very fact that there is much more to analyze (than before) when anyone tries to “rank” governance practices in various countries, is indicative of this.  In particular, I find it especially interesting that the self-interest of certain family dynasties has caused them to have strong interest in better corporate governance because “because there is a corollary for him between good governance and the long-term future of his corporation. ” See below.

Business Financial Post ”Japan discovers ‘good’ governance, U.S. style”

”Not so long ago, back when they were eating the lunch of American corporations, Japan’s Toyotas, Hitachis, Sonys, Canons and Hondas were governed in the worst possible way — at least according to the canons of American governance. Their boards were made up almost exclusively of corporate insiders, with no independent directors and no diversity. […]