RIETI World KLEMS Symposium Growth Strategy after the World Financial Crisis 2014 May 20, JP Tower & Conference, Tokyo Masahisa Fujita RIETI/Konan University/Kyoto University
1. Introduction: The Three Priority Viewpoints of RIETI In the face of rapid globalization, technological changes, and decreasing and aging population, i. how to incorporate the growth of the world economy? ii. iii. how to develop new growth areas? how to create new economic and social systems for sustainable growth? i ii iii enhancing the productivity and vitality of the Japanese economy and society in the long run Supporting the Third Arrow of Abenomics in the long run 2
2. The evolution of the global economy in the recent past: from the viewpoint of spatial economics Rapid Progress in ICT and Transport Technology together with the promotion of free trade through WTO FTAs EPAs Globalization of production trade investment and finance dense networks Local Agglomeration of production consumption R&D A Complex, Networked World Efficient and growth enhancing under normal conditions but Vulnerable to major local disasters / shocks 3
World GDP and Trade GDP 60 50 40 30 (2005 price trillion dollar) GDP annual growth rate Trade annual growth rate 1970 2000: 3.2% 1970 2000: 5.6% 2000 2008: 3.0% 2000 2008: 6.5% 2008 2009: 2.0% 2008 2009: 5.1% 2009 2012: 3.9% 2009 2012: 8.8% Trade 16 14 12 10 8 20 10 0 World GDP World Trade (Right scale) 1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 6 4 2 0 Source: UN National Accounts Statistics Database and WTO Time Series on International Trade 4
Impact of Decreasing Transport Costs ICT revolution TT development WTO / FTAs / EPAs major reduction in transport costs more even distribution of economic activity on earth? common sense the prediction of spatial economic theory only when transport costs become sufficiently low major agglomeration concentrated dispersion utilizing scale economies (home market effects) further reduction in transport costs 5
Source: the Earth at night 2012, NASA Earth Observatory/NOAA NGDC (http://earthobservatory.nasa.gov/features/nightlights/) 6
50% 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% GDP shares in the world total: East Asia, EU, NAFTA Three polars total (right scale) NAFTA EU East Asia 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% East Asia = ASEAN 10 plus China, South Korea, Japan, Taiwan and Hong Kong Source: IMF World Economic Outlook database October 2013 By courtesy of Professor Nobuaki Hamaguchi 7
GDP shares within East Asia 80% 70% Japan 60% 50% 40% 30% 20% the Rest China Japan the Rest 10% 0% China 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 Source: IMF World Economic Outlook database October 2013 By courtesy of Professor Nobuaki Hamaguchi 8
Income divergence / convergence in East Asia GDP per capita at 2005 price US$, Japan=1 1.6 Phase 1 Phase 2 Phase 3 1.4 1.2 1 Philippines Japan=1 Singapore 0.8 0.6 0.4 0.2 0 China Thailand 1950 1953 1956 1959 1962 1965 1968 1971 1974 1977 1980 1983 1986 1989 1992 1995 1998 2001 2004 2007 2010 Hong Kong Korea Taiwan Malaysia Vietnam Lao PDR (Source) Penn World Table Version 8.0 By courtesy of Professor Nobuaki Hamaguchi 9
Share of intra regional trade in each region 70% 60% 50% 40% 30% 20% EU27 EU15 East Asia NAFTA North East Asia ASEAN 10% 0% 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 Source: RIETI TID By courtesy of Professor Nobuaki Hamaguchi 10
3. Is Asia still the World Factory? International Trade Structure (2006) Intermediate Goods Consumption Goods Asia USA Asia USA Source: 2008 White Paper on International Economy and Trade 11
Trade between the US and East Asia (billion US dollars) 800 700 East Asia s Exports to the US 600 500 400 China s Exports to the US 300 200 US Exports to East Asia 100 0 US Exports to China 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Figure 1. The Value of US Exports to China and East Asia and China s and East Asia s Exports to the US. Source: US Census Bureau. Note: East Asia includes China, Japan, Indonesia, Malaysia, the Philippines, Singapore, South Korea, Taiwan, and Thailand. (Figure made by Dr. Willem Thorbecke at RIETI) 12
US Trade Deficit (billion US dollars) 500 Trade Deficit with East Asia 400 300 200 100 Trade Deficit with China Trade Deficit with non East Asian Countries 0 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Figure 2. US Trade Deficit with China, East Asia, and non East Asian Countries. Source: US Census Bureau. Note: East Asia includes China, Japan, Indonesia, Malaysia, the Philippines, Singapore, South Korea, Taiwan, and Thailand. (Figure made by Dr. Willem Thorbecke at RIETI) 13
East Asia today: the World Factory based on supply chain networks centered around dozens of major cities and industrial agglomerations Bangkok Tohoku Sendai 14
Agglomeration through snowball effects Example: auto/electric machinery industry set makers Domestic Overseas cars/ appliances parts materials auto / electric machinery suppliers of parts and materials labor capital key parts materials Domestic Overseas Key factors for agglomeration: scale economies and low transport cost 15
World parts and components trade shares by region 100% 90% 80% Intra Regional to the ROW NAFTA 70% 60% Intra Regional EU 50% to the ROW 40% 30% 20% Intra Regional East Asia 10% to the ROW 0% 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 Source: RIETI TID ROW: Rest of the World By courtesy of Prof. Nobuaki Hamaguchi 16
4. Auto Industry: global supply chain and its vulnerability 25,000,000 Automobile production by area (All types) China 20,000,000 15,000,000 Europe NAFTA Japan + Korea 10,000,000 5,000,000 South America ASEAN South Asia 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Source: OICA 17
Automobile production in ASEAN 2,500,000 2,000,000 1,500,000 1,000,000 500,000 0 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Source: OICA Thailand Indonesia Malaysia Philippines Vietnam 18
Automobile industry (together with supporting industries) production of a car assembling 20,000~30,000 parts scale economies in production low transport costs each key part produced at only one (or a few) locations in Japan (or East Asia) multilayered complex supply chain networks from procurement of parts to delivery of finished products minimizing inventory stocks through just in time procurement policy Quite efficient under normal conditions but Quite vulnerable to major disasters 19
Agglomeration of auto and supporting industries in Japan domestic Domestic production sales per year 10 million cars exports : about half : about half Oversea production : 16 million cars (using key parts from Japan) Tohoku Tokai Kyushu 日経ビジネス 2010 10 18 号 20
Supply chain of automobile parts in ASEAN countries Source: IDE JETRO and WTO 2011, Trade Patterns and Global Value Chains in East Asia: From Trade in Goods to Trade in Tasks 21
Index of Automobile production in Tohoku and in Japan (synchronized impacts) Tohoku Japan Lehman Shocks Quakes and Tsunami 2008 2009 2010 2011 Source: R. Wakasugi, RIETI Symposium on Great East Japan Earthquakes, 2011.11.07 22
The Global Impact of the Japanese Quake and Thailand s Flood 60.0 40.0 20.0 0.0 20.0 40.0 60.0 80.0 100.0 2011, Japan, Guangdong (China), Thailand, and the US Automobile production (y o y % change) January 57.3 85.7 February Japan Guangdong China Thailand USA March 39.0 60.1 April 25.2 Japanese Quake May June July August September 67.6 Thailand s Flood October 85.0 November 27.6 December Source: JAMA, Statistic Bureau of Guangdong Province, TAIA, Federal Reserve Board By courtesy of Professor Nobuaki Hamaguchi 23
2011, ASEAN automobile production (y o y % change) 100 80 60 40 20 0 20 40 60 80 100 Januar Thailand Malaysia Indonesia 74 Philippines 30 23 8 0.7 25 25 23 40 57 Japanese Quake 68 Thailand s Flood 85 February March April May June July August September October November December Source: TAIA, AAM, GAIKINDO, AAP By courtesy of Professor Nobuaki Hamaguchi 24
Impact of natural disasters and international conflicts on automobile sales in China % 100 Toyota 80 60 40 East Japan Earthquake (11/3) Nissan Thai Flood (11/9~) Senkaku Conflict (12/8~) 20 0 20 40 Honda 60 2011/2 5 8 11 12/2 5 9 11 13/1~2 4 5 Source: The Nikkei, 10 October 2012 and 5 June 2013 (two diagrams combined by the author) 25
No place in the world would be risk free! Possible large scale disruption of supply chains from any major disaster: Natural disasters Quake Tsunami Flood Typhoon / Hurricane Social disasters Air / Water pollution Epidemics Financial / Monetary shocks Terrorism Political conflicts Military conflicts / War Global warming Secondary disasters Transport disruptions, Nuclear Power plant accident, Demand/Supply disruptions International cooperation for mainstreaming the global resilience of supply chains 26
5. The Asian Century?: Prospects and Tasks The Scenario of the Asian Century (ADB, ASIA 2050) Global Population: 7.1 billion Asian Population : 3.9 billion (55%) 2012 2050 9.2 billion 4.8 billion (52%) market Global GDP: $70 trillion FX rate Asian GDP : $21 trillion (30%) 4.2% / year 5.8% / year $335 trillion $174 trillion (52%) ME NA 4% SSA 2% the Rest 1% ME NA 3% SSA 2% the Rest 1% LAC 8% Europe 29% Asia 30% North America 26% LAC 6% Europe 18% North America 16% Asia 52% 27
In order to realize the expected Asian Century Asia as the World Factory today based on the extensive supply chains utilizing huge wage disparity Advanced Production networks a World Center of High Quality Markets + + Innovation networks International Cooperation I. Rebuilding more resilient and inclusive Supply Chain Networks, and II. Strengthening the Brain Power Network for the future Asia 28
6. Developing the brain power network in Asia Development of the Brain Power Society since the late 20th century Revolutionary development in ICT and Transport Technology globalization of the world economy Development of Brain Power Society The major reorganization of global economic political social systems 29
NIKKEI ASIAN REVIEW March 20, 2014 Eruption of Innovation Number of papers most cited (top 1%) Number of papers Number of patent applications Government R&D expenditure Private Sector R&D 30
50 45 40 35 30 25 20 15 10 5 0 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 trillion yen 16.9 6.0 R&D expenditure by country (OECD PPP) 47.4 US China Japan 19.8 18.9 17.1 Germany S. Korea France UK 0.8 31
(thousand) Number of patent applications by nationality 600 500 400 300 200 100 0 Data source: National Institute of Science and Technology Policy Diagram made by Dr. Isamu Yamauchi at RIETI China Japan US S. Korea Germany France UK 32 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Number of papers cited frequently (top 10%) 60,000 50,000 40,000 30,000 20,000 10,000 0 Data source: National Institute of Science and Technology Policy Diagram made by Dr. Isamu Yamauchi at RIETI US UK Germany China France Japan S. Korea 33 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Importance of International Cooperation through diversity and culture in the Brain Power Society The fundamental resources in the Brain Power Society Individual Brain Power Diversity in people brains in the society Synergy through heterogeneous people brains Diversity in cultures among different regions Synergy through heterogeneous cultures 34
close cooperation of heterogeneous K workers (e.g. nominication in Japan) antinomy in the short run through close communications synergy in the long run Common knowledge diversity synergy for resolving this fundamental problem Promote active interactions among diverse regions and countries 35
Diversity and creativity: National Institute for Materials Science (NIMS) Table 1. The number of foreign researchers in public research institutes in Tsukuba (2011, March) Table 2. World ranking in terms of citations in materials science (NIMS) Share of foreign reseachers (%) Figure 1: share of foreign researchers at NIMS 2001 2011 Among high ranking papers at NIMS in terms of citations, the number of papers written by author(s) including foreign researcher(s) among top 10 papers: 8 among top 31 papers: 24 SOURCE: Ariga and Urao, Productivity enhancement of a research institute through the contribution of foreign researchers, Science & Technology Trends No.127, 2012, 1 2, Ministry of Education and Science 36
The Map of international research cooperation in Solar Cells the number of papers and international coauthorship (published between 1945 and 2009) Source:I. Sakata, H. Sasaki, H. Nakamura and Y. Kajikawa "Maps of international research collaboration in clean energy" Journal of Energy and Power Engineering 7 (2013) Ranking in the number of papers 1 st : US, 2 nd : Japan, 3 rd : Germany, 4 th : China, 5 th : India, 6 th : France, 7 th : England, 8 th : South Korea, 9 th : Spain, 10 th : Italy 37 (but, weak research cooperation in Asia)
7. The Growth Strategy for Implementing the Third Arrow Making the economy grow while the population decreases Enhancing the TFP of economy But, how? : Innovation everywhere involving everyone! Advancing the bold new strategy reflecting new values such as: I. Silver is beautiful II. Small and creative is beautiful III. Open and connected is beautiful 38
Flying Geese of Aging Society in Asia Pacific the population share (%) of aged people over 65: year 2010 year 2060 4 16 Laos 5 18 Myanmar 5 16 India 5 17 Indonesia 4 12 Philippines 5 21 Cambodia 5 21 Malaysia 13 24 US 6 24 Mexico 5 21 Bangladesh 7 29 Vietnam 8 28 China 14 26 Canada 11 37 Korea 13 37 Hong Kong 9 33 Thailand 9 32 Singapore 23% 40% Japan Let Japan be a leader of the innovative silver society Source: UN World Population Prospects, The 2012 Revision Source for Japanese data: National Census of Japan, National Institute of Population and Social Security Research, Population Projections for Japan (2012 revision)
Who are the aged? Why fix the dividing line at 65? The average life expectancy in Japan actual estimate Data source: Ministry of Health, Labour and Welfare Diagram: Cabinet Office, Government Of Japan Report on Aging Society, 2014 Ultimate Goal: Create a new society where everyone can happily work/enjoy in good health until the end. 40
The Silver is beautiful: Senior Citizen Creating the best matching Big customers for new products / industries housing goods services entertainments tailored for the aged medical / nursing services medical / nursing equipments friendly and helpful robots lifetime education all kind of resorts / retirement villages Younger generations Big resources human resources for workers / managers, skills / knowledge, innovation / creation / ventures financial resources Creating the most innovative silver society through international cooperation 41
Increasing share of consumption expenditure by senior households American labor force participation rate: aged 62 74 Source: Nikkei Shimbun, May12, 2014 Source: The Economist, April 26, 2014 42
Irodori Project in Action (with All Smiles): Kamikatsu, Tokushima 43
Products of Irodori Project: Tsumamono for Japanese Dishes 44
Irodori (Color) Project in Kamikatsu Village, Tokushima Initiated in 1986 by Mr. Yokoishi (then 24 years old) of JA and four senior ladies Now 150 members (all farmers) average age: 67 (mostly females), the oldest: 94 Average revenue per member: 1.7 million yen Kamikatsu village today Irodori project + four similar projects (the third sector) population: 2092 (U turn + I turn: 6.3%) aged people over 65: 47% (the highest in Tokushima) only two persons are bedridden per capita medical expenditure (National Health Insurance): 260 thousand yen (vs. 460 thousand yen at the village with the second highest ratio of elderly) 45
Small and Creative is beautiful. Ranking of Japanese per capita GDP in OECD rank 0th rank Country 2008 5th 10th 9 7 7 3 3 8 4 4 2 3 3 3 4 6 4 3 5 8 9 1 Luxemburg 117,967 2 Norway 94,763 3 Switzerland 64,885 4 Denmark 62,054 5 Ireland 59,944 6 Netherlands 53,094 7 Iceland 52,568 8 Sweden 51,954 9 Finland 50,931 10 Austria 49,527 11 11 12 11 Australia 48,049 12 United States 47,186 13 Belgium 47,151 15th 14 15 15 14 Canada 44,950 15 France 44,550 16 Germany 44,519 20th 18 17 18 19 19 17 United Kingdom 43,237 18 Italy 38,455 19 Japan 38,371 20 Spain 34,971 Source:OECD Factbook 2010: Economic, Environmental and Social Statistics, and http://www.esri.cao.go.jp/jp/sna/h20-kaku/percapita.pdf 46
The top 10 countries in the OECD in terms of per capita GDP (2008) 1. All small countries located in the northern part of Europe 2. The total population of the 10 countries: 63 million (about ½ of Japan) The average population: 6.3 million (vs. 5.5 million in Hokkaido) To achieve economic growth in a Brain Power Society, population size is not essential. 3. Most countries are already in the advanced silver society. (the share of people over 65 in 2010: Sweden 18%, Denmark 17%, Switzerland 17%, Finland 17%, ) 4. Each is an independent country, having its own language and culture, with a unique set of economic social educational policies. 5. Each spends a high proportion of GDP on education (Denmark 7.8%, Sweden 6.7%, Norway 6.7%, Finland 5.9%, vs. Japan 3.4%, in 2007) 6. Each is highly globalized with high GDP ratios of exports, out FDI and in FDI, and with a high proportion of immigrants 7. Most multi national firms are concentrated on knowledge intensive activities (e.g. HQ management, R&D, design) with high profit ratios, while all workers in each country get relatively high wages, (cf: Grossman and Ross Hansberg, 2008, AER 98) 8. The ten countries together form a Brain Power Society, rich in diversity 47
Let Japan be a union of semi independent shining regions We Love Hokkaido A We Love Japan We Love the World D Tokyo B We Love Kansai We Love Japan We Love the World C 48
Open and connected is beautiful Promoting the Regional Integration of Asia Pacific Europe FTAPP RCEP TPP China Korea Japan ASEAN NAFTA 49
Connect or Perish: International coauthorship Source: Nikkei Shimbun, May 12, 2014 50