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Hitachi Research Institute


Interviews with experts and opinion leaders from our research network

Considering the Future in a Turbulent World Economy
- From shortage to oversupply:Considering effective measures for adjusting to a new era -

Mr. Atsushi Nakajima, Chairman of the Research Institute of Economy, Trade and Industry believes that underlying the low growth in the world economy and political instability since the world financial crisis is the occurrence of a gradual shift to an era of surpluses – a surplus of people, goods, money and energy – and that there is a need to establish a new order. We interviewed Mr. Nakajima regarding his views on what is at the core of changes taking place, his outlook for the future, and possible measures to take in preparation of the changes that lie ahead.

Mr. Atsushi Nakajima

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Chairman, Research Institute of Economy, Trade and Industry (RIETI).
Graduated from The University of Tokyo’s Faculty of Law in 1975 and joined the Industrial Bank of Japan in the same year. Served as General Manager, Industrial Bank of Japan (IBJ), Paris Branch; President, Banque IBJ (France) S.A.; and General Manager, Research Department, IBJ.
After serving as Chief Economist and Senior Managing Executive Officer, Mizuho Research Institute, took up his current position at RIETI in April 2011.
Also held a public position as Expert Member, Fiscal System Council, Ministry of Finance, Japan.
From 2002 to March 2011, a regular commentator on “World Business Satellite” of TV Tokyo.
Main publications: Daikajo: Hito, Mono, Kane, Enerugii ga Sekai wo Nomikomu (Era of Large Excess Economy: People, Goods, Money and Energy Will Devour the World) (2017, Nikkei Publishing Inc.), Tokei de Yomitoku Nihon Keizai Saikyo no Seicho Senryaku” (The Strongest Growth Strategy for the Japanese Economy Indicated by Statistics) (2013, Discover 21, Inc.), Nihon no Toppako – Keizai Teitai no Genin wa Kokumin Ishiki ni Ari (Breakthrough in Japan – The Cause of Economic Stagnation is in the Consciousness of People) (2011, TOYO KEIZAI INC.)

Scenario for restructuring Japan’s finances

Shirai:When we discuss the future world economy, there are a number of plausible scenarios. For example, there is the inflation scenario whereby the world economy grows and the developed countries, emerging countries, and developing countries will reap the fruits of the economy. For Japan, which has an enormous fiscal deficit, pulling itself out of deflation is a crucial issue. In contrast to the United States and the EU countries, which have already begun to make headway in fiscal normalization, the exit for Japan is not yet in sight. Although there are some who hold the opinion that the only solution to an economy with a deficit of this scale is to create an economy of hyperinflation, if Japan actually maintained price increases between 2 to 3% through moderate inflation, the nominal growth rate would be 3%, even when the actual growth rate is just under 1%, bringing the possibility of fiscal restructuring within sight.

Nakajima:The world economy as a whole is in a state of disinflation, and underlying this is the impact of world economic growth and a decline in population growth. Furthermore, since supply is exceeding demand, gradually promoting fiscal soundness by increasing the nominal growth rate based on a gradual inflation scenario can be considered a realistic approach to dealing with Japan’s fiscal deficit.
The problem, however, is in realizing a gradual inflation scenario against a backdrop of global disinflation. In Europe and the United States, an inflation rate of about 2% is considered desirable, and while the trend in price increases has slowed in the wake of the world financial crisis, service prices are rising. While Japan is experiencing an increase in commodity prices due to the rise in oil prices and depreciation of the yen, service prices have hardly increased. This can be attributed to a lingering “deflation mindset.”
Boosting wages is a key element in achieving a gradual inflation scenario. Unless there is an upswing in wages, consumption will not expand and inflation will not eventuate. It is necessary to raise people’s expectations of inflation by raising wages. If wages rise in tandem with prices, people will be willing to pay higher prices and their opposition to price increases will decline.
The same goes for companies. It may appear that not raising the prices of goods and services is an underlying principle in business management but it is important to transform this to a structure that results in profits even after raising prices and labor expenses.
To build price rises into the economic system amid global disinflation, a change in people’s awareness is vital. To do this, measures based on interlocking wages and prices are essential.

Can we instigate disruptive innovation?

Shirai:According to an analysis of Professor Hiroshi Yoshikawa (Faculty of Economics, Rissho University), during Japan’s period of high growth, the economy did not grow simply because of the growth in population but rather because of innovation and the strength of Japan’s companies. In this regard, I believe entering a new growth stage through a breakthrough driven by a fourth industrial revolution or Society 5.0, for example, would be the most ideal scenario. Conditions for technological innovations including AI and IoT are already in place, and Japan, as the developed country at issue, has various latent needs. Although it is not clear whether such innovations will be comparable to the discovery of electricity or the debut of the automobile, the question at hand is: Can we visualize a scenario for accelerating growth through disruptive innovation that will significantly change people’s lives, society, and industry?

Nakajima:I believe we can. When we look at the history of the industrial revolution, we find that when disruptive innovation leads to new growth in the world economy, the mechanisms of society and consumption change, new consumption and services never seen before appear, and growth, triggered by these innovations, expands. It is important to formulate mechanisms that facilitate the creation of innovation.
In developed countries, the weight of consumption is shifting from consumption based on “goods” to consumption based on “services” and “experiences.” In the case of goods-based consumption, consumption expands for many cases by increasing the frequency of replacement, but in the case of consumption based on “services” and “experiences,” it is possible to repeatedly expand the frequency of consumption since these cannot be accumulated, and thus continuously expand consumption more than goods-based consumption. Companies have continued to grapple with the issue of expanding consumption in response to changes over time. The notion that growth is unachievable due to lack of growth in population does not constitute a reasonable excuse. Furthermore, the point in creating new consumption of services and experiences is to change the social system through disruptive innovation. The first industrial revolution gained peak momentum not with the discovery of the steam locomotive but with the popularization of long-distance transportation, thanks to the development of railways, whereby the great adventure of a journey that often involved risking one’s life was transformed into ordinary travel. The railways were also instrumental in the significant development of the hotel business and travel agent business thereafter.
In the fourth industrial revolution, which is said to have already begun, social systems never seen before and mechanisms that will create new lifestyles hold the key. Various cutting-edge technologies can be considered as drivers of the fourth industrial revolution. For example, autonomous vehicles will eliminate the inconvenience of travel for disadvantaged shoppers, the aged, and people without a driver’s license. If solar power generation is also used as the energy source for autonomous vehicles, energy will be free. If autonomous electric vehicles are adeptly used, people will be able to live more comfortably irrespective of where they are in Japan. In building such a framework, consumption of new services including car dispatch services will be created, and the amount of per capita consumption will grow beyond the existing framework we have now. A new chain of consumption will lead to new growth of the economy.

Dramatic changes in world economic order

Shirai:On the other hand, a scenario where the world economic order collapses, and rules that favor large economic powers develop is also plausible. Under the Marshall Plan following the Second World War, it was the United States that rebuilt and supported the development of the world economy. At present, China, as the world’s second largest economic power, has established the Asia Infrastructure Investment Bank (AIIB) and the Silk Road Fund, and has been promoting its One Belt, One Road initiative. Therefore, it may appear that China is building a new international order through its pursuit of geopolitical interests and economic interests. How do you think the economic order, which has been centered on the United States until now, will change?

Nakajima:There is a fair possibility that the world economic order will change.

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At present, the United States is shouldering the world’s trade deficit singlehandedly. Countries at present use the US dollar as the basic currency to engage in international trade and overseas investment. However, if the United States stops supplying the US dollars, which support the world economy, by significantly reducing its trade deficits, there is no solution at present as to what currency would be used as an alternative for international settlement in place of the US dollar. China has the world’s No. 1 trade surplus and is the world’s second largest economy, yet even if the Chinese yuan were to replace the US dollar as basic currency, it would take some time. For example, although supplying the Chinese yuan as a basic regional currency for the Asia region only is plausible, this raises the question as to whether China can make the transition to an economy capable of supplying Chinese yuan even with ongoing reduction in its current trade surplus. Another question is, will China be able to maintain the value of the Chinese yuan?
At one time, there were efforts to make the euro the basic currency. Doing this, however, would require establishing a euro zone economy capable of supplying euro throughout the world while achieving growth even with a trade deficit. The only country capable of achieving this to date has been the United States, which, despite having a trade deficit, has remained the world’s largest economy capable of growth. One question this raises here is whether China or a euro zone is capable of creating an economic structure comparable to that of the United States. This is never going to be easy. On the other hand, there is a limit for even the US economy to continue to run huge deficits while continuing to purchase commodities overseas. There is a growing body of anti-global protestors who claim that the manufacturing industry is hollowing out as domestic employment continues to be lost to overseas countries. Although this is a difficult issue, the push to review a US-centered economic order, which is suffering from a trade deficit, will strengthen. An important question here is, what country can maintain an economy with a basic currency while shouldering a trade deficit?

Avoiding a struggle over the pie

Shirai:If we consider the trend among countries to give priority to their own interests, as manifested in the Brexit decision and the election of a US president who vowed to put “America first,” another plausible scenario in a world where both developed and developing countries feel they no longer have much room to maneuver is one where countries engage in a long-term struggle over shares of the world economy pie. As emerging and developing countries aim for economic growth through the promotion of exports in the future, the question is, what must be done to avoid the occurrence of an excessive struggle over “shares of the pie” among countries and to maintain stability in society?

Nakajima:Exports and inward direct investment are supporting favorable growth in emerging and developing countries. Cheap labor and resources attract foreign companies, and growth in exports and domestic production promotes growth in employment. Although there was not significant growth in inward direct investment in postwar Japan, an export-led growth model drove economic growth. A look at the history of the United States also shows the story of a country that became an economic giant on the back of trade surpluses with Europe. The problem today is, while growth of the world economy is slowing, offshore relocation of domestic companies that possess technology is increasing and the domestic industry base is hollowing out.


A number of methods can be considered for growing the world economy as a whole in a context where developed countries and emerging/developing countries alike continue to grow. While it is ideal for the world economy as a whole to expand significantly as it did at the beginning of the 2000s, this ultimately resulted in the creation of a gigantic bubble economy and its subsequent collapse, triggered by the United States subprime loan market. Therefore, an increase in growth cannot be considered favorable if it is within a framework that will have negative repercussions in years to come. One idea for the growth of developed countries and emerging/developing countries without escalating friction or exacerbating anti-global sentiments is to base the generation of income on the division of countries into different international trade areas; in other words, to adopt an approach that promotes differentiation.
A look at changes in world trade in recent years shows that trade in services is growing more than trade in goods, and the service industry in developed countries has high productivity and competitiveness. The combination of an effective framework between the services trade in developed countries and the goods trade in emerging/developing countries is perhaps a simple method of division. Although tensions in the United States are growing over its trade deficit, in regard to the current account, President Trump expresses verbal dissatisfaction over the trade balance only, and never the balance of services or balance of income of the current account.
For the emerging/developing countries, there is significant merit in attracting foreign companies with technical know-how and having them manufacture products in their countries. When overseas companies make direct investments in emerging or developing countries and send their profits to the countries where their head offices are located, the balance of income for the emerging/developing countries will be in deficit. However, if the developed countries increase their surplus in balance of services and balance of income through this arrangement, the emerging/developing countries are unlikely to be dissatisfied. For developed countries, further strengthening this area will lead to growth.
Dividing areas of competitiveness will lead to avoidance of trade friction, and will contribute to balanced growth in the world economy. Creating totally new products through breakthroughs and providing services and goods that people find attractive are areas in which developed countries are generally good at. If the production of conventional commodities is deployed to the most efficient regions where profits can be secured, and developed countries provide developments in technology and new systems to the world, all countries should be satisfied.

①Addressing the surplus of goods

Shirai:Mr. Nakajima, in your book Daikajo: Hito, Mono, Kane, Enerugii ga Sekai wo Nomikomu (Era of Large Excess Economy: People, Goods, Money and Energy Will Devour the World) (2017, Nikkei Publishing Inc.), you mention the global excess of people, goods, money and energy.
First, I would like to ask you about the excess of goods. At present, India, followed by other emerging countries, is set to follow in the footsteps of China, which achieved high growth driven by exports, as economic development proceeds in what we might call a “flying geese-type formation.”*1 While exports are growing and supply pressure is increasing, demand centered on developed countries is not growing significantly. Although Japan is experiencing supply pressure for goods from emerging countries, the hollowing-out of the domestic manufacturing business is not evident as in the United States. In the future, how should Japan maintain its monozukuri (craftsmanship-oriented) manufacturing industry?
The ratio of labor included in manufacturing costs has decreased and automation is progressing in line with the development of 3D printers. Do you think there is a possibility that the trade structure will significantly change in the near future, in a scenario where we will see manufacturing revert to developed countries from emerging countries?

Nakajima:Japan is a country where the ratio of capital investment to GDP is exceptionally high even among the major countries. However, the United States has a higher ratio of software investment, and the gap is rapidly widening. While R&D investment*2 is growing a little, the growth of intellectual property investment*3 is low. On the whole, although Japan is making efforts to invest in manufacturing, it is lagging in value-added areas achieved through software. The optimal location of production bases will undoubtedly change in the future from what it is at present. If conditions are met, it is certainly conceivable that industrial sites and factory sites will revert to developed countries. When this happens, it will be important to decide where the source of value is required, and where to place the weight of value. And what can be considered as the replacement for cheap labor? For example, something like 3D printers have mobility, and if mass production becomes possible in the future, Japan will be capable of manufacturing both small and large varieties flexibly. If the cost can be reduced and productivity increased by locating factories in Japan, superior conditions for producing goods and services will be met.
Nevertheless, although Japanese companies have world-class technologies, their intellectual property investment and software investment, which will lead to future competitiveness and value-added creation in the future, are inadequate. I am also interested to see whether Japanese companies can adequately invest the funds required to satisfy conditions that will make Japan an optimum location. Because Japan’s domestic market is saturated and it is difficult to make it an export base after such a long time, there has been restraint in investment. Consequently, productivity cannot be increased without investment. Unless Japan introduces change in both hardware and software, it will not be able to keep pace with world trends. So long as there is a view that a low yen is advantageous, Japan will be no different from the manufacturing industry in developing countries where battles are won and lost on low prices. Irrespective of the yen’s depreciation or appreciation, the challenge for Japan is to create conditions that will make Japan an advantageous location either through its strengths as “the only one” in the field or its predominance in productivity.


A structure for economic development whereby developing countries follow developed countries by first importing, then increasing domestic production, and finally achieving growth through exports
Expenditure a company undertakes to develop a new product, production method, and/or technology
Expenditure for maintaining intellectual property rights such as patent rights, design rights and trademark rights

②Addressing the surplus of people

Shirai:As the fluidity of human resources progresses worldwide, Japan is experiencing a paradoxical situation where the number of university students and the workforce population are both contracting. When it comes to human resources, Japan is perhaps close to being a country isolated from the outside world. Can Japan secure highly qualified human resources solely sourced through university and graduate school graduates without accepting immigrants? There are plans to establish an international financial center in Tokyo and to accept a large number of excellent human resources from overseas. As the scramble to secure highly-skilled human resources unfolds, what kind of initiatives will be required to secure human resources and to increase competitiveness?

Nakajima:It is necessary to properly establish work arrangements commensurate with people’s qualifications, in other words, conditions such as position and wages.
If Japan is willing to open its doors and actively accept human resources from overseas, there are probably many people who would consider working in Japan. On the other hand, under present conditions, the framework of Japanese companies creates barriers, and even after securing highly-skilled human resources, it could be difficult for them to fully demonstrate their capabilities. In Japan, work rules for generalists are not established, and when there happens to be a shortage in clerical staff, a generalist is expected to cover this work. There is also a fixed idea in Japan that it is only natural for young employees to have low wages. Having generalists work with specialists may be difficult unless the division of work is clarified beforehand.
Furthermore, Japanese companies have a system whereby employees work as a team. It is customary in a Japanese office to establish a number of “islands” on the office floor, and in front of the respective section managers’ desks will be the desks of the employees in their charge. In an era when labor costs were cheap, executing work through these “islands,” in other words, teams, was a form of power. Once labor costs become expensive, however, this customary system cannot be justified. If a company reviews details of its business operations, encourages individual employees to demonstrate their abilities, and offers conditions commensurate with their abilities, efficiency is sure to increase.
The tax system is also a problem. Although there was a move to establish a Tokyo financial center in the latter half of the 1980s, it ended in failure. There were many contributing factors but one of these, which remains an obstacle even at present in attracting financial specialists with high remuneration, is the Japanese tax system. The income tax rate in Japan simply cannot compete with the low tax rates of countries like Hong Kong or Singapore. The world’s top financial specialists always have a department or office under their control, and Japanese companies that can attract such elite specialists may also attract their entire department teams to demonstrate their capabilities. An effective approach for Japan would be to create a new framework for attracting highly-skilled people and to provide reductions and exemptions in a revamped tax system that encompasses both corporate tax and income tax. Of course, Japan has its own way of doing business, and there is no need to entirely change systems including the tax system simply to attract highly-skilled human resources. However, if we consider the example of China’s creation of special economic zones, where the government boldly liberalized the tax system and regulations, thinking outside of the box to devise measures for increasing competitiveness is worthy of consideration.
Another barrier is the low level of linguistic competence in Japan. According to a study conducted by IMD, an international think tank in Switzerland, Japan ranked last among 61 countries in the category for linguistic competence. The number of foreign companies is overwhelmingly low in Japan, and the ratio of Japan’s inward direct investment balance to GDP also ranked in the lowest rung among the world’s 199 countries. Of course, Japan has the potential to improve in the future. Recently, the number of overseas visitors to Japan has risen and opportunities for the general population to use English have also increased. Increased opportunities to go abroad will also enhance people’s awareness of viewing things from a global perspective. Cultivating a global awareness is also vital in dispelling fixed ideas.

③Addressing the surplus of money

Shirai:While there is an overflow of money throughout the world due to the quantitative easing policy adopted by Japan, the EU and the United States, the public sectors in Japan as well as in many other developed countries have deficits, and use of private sector funds through PFI (Private Finance Initiatives) and PPP (Public-Private Partnerships) is an issue. Recently, there is a drive to make financial systems more efficient through the use of Fintech. While there is an overflow of money at the global level, it is not circulating at the micro level where it is needed. What will be the best way to resolve this situation and change the course of the flow of money so that it circulates effectively? In addition, are measures to direct personal savings and corporate internal reserves toward investment plausible?

Nakajima:In Japan’s case, only the government sectors have balance deficits. Households are in surplus and the business sector is even more in surplus. Despite having money on hand, neither individuals nor companies are spending it. The only way to have money circulate is to spend it. This calls for a change that will encourage more spending. Unless money is saved, it cannot be spent. This means spending money while accumulating savings at the same time. A look at the composition of individual financial assets shows that the ratio of savings is very high in Japan compared with savings in other major developed countries, and accounts for more than half of financial assets. In the United States, the shareholding ratio is high while savings account for 10% of assets, and in Germany the ratio of savings is 30%. It may be advantageous for Japan to further increase the shareholding ratio. This also leads to diversifying points of view in regard to the use of money, such as considering both investments and purchases in a balanced manner. The concept of deposits and savings means saving money from earned income. In that sense it can be said that an employee, or a strong sense of being an employee, is transformed into the sense of being an investor when the employee spends his or her money on shares of the company. Once people hold shares, they become more aware in a positive way of the manner in which money is spent, which might be reflected in comments like, “The company should invest more to increase earnings,” or “The government has a poor fiscal balance between spending and investment.”


The structure of the share market shows that the ratio of shareholding by individual investors is declining. The introduction of the Nippon Individual Savings Account (NISA) affords individuals the opportunity to start investing in shares but the amount and term are limited. I believe the scheme should be revamped more boldly. The more a period of “surplus money” persists, the more seriously people need to consider how to manage their financial assets rather than how to earn money per se. If we create a structure through which individuals can properly earn money from investing, and a growing number of people begin to share an investor’s viewpoint, it may be possible to get more people to shift their money from savings to investments. Deregulation is also an effective measure. Financial institutions have a role to look after money as well as a role to lend money. Since their role in lending is strong, emphasis until now has been placed on tightening regulations to protect the borrower and the depositor. Nevertheless, regulations have the potential to weaken the circulation of money that enriches people by obstructing its smooth circulation. On the other hand, deregulation of course should never allow the emergence of despotic power in the financial industry, or the impairment of funds in the care of financial institutions due to inappropriate management, and therefore, maintaining a balance is essential. However, competitiveness should be promoted through deregulation, and not only internet enterprises but also financial institutions should themselves be at the vanguard in taking up the new mechanism of Fintech. In the United States, measures alternate between strengthening financial regulations and promoting deregulation. In the subprime loan market, excessive deregulation gave rise to a bubble economy and its subsequent collapse, which became the trigger for massive damage to the world economy. In some areas, regulations were tightened afterwards, and balancing these is rather difficult at present. However, in the United States during the 1990s, financial institutions were predicted to be the growth industry of the 21st century. Therefore, even if they do not reach that stage, I believe dynamic deregulation may be necessary to effectively utilize abundant money supplies in a positive way.

④Responding to a surplus of energy

Shirai:Finally, there is the surplus of energy. On the back of the shale gas boom, the United States has become the world’s largest energy producer. With the United States, a country with political stability, holding supremacy in energy, energy-related geopolitical risks are expected to significantly decrease. Cheap resources are also bringing about new changes, such as an increase in competitiveness of the US chemical industry. On the other hand, although Japan is having difficulty reaching a national consensus on energy policy in the wake of the Fukushima nuclear plant accidents, it is crucial for the country to consider renewable energy use and energy security.
In the new environment where the world’s energy supply is expanding on the back of the shale gas boom, how should Japan’s energy policy and industry policy change?

Nakajima:The presence of a large volume of unconventional oil resources like shale oil in the United States, a country with little geopolitical risk, is also a big plus for Japan’s energy security. We must also restructure the energy mix of importing countries and devote efforts to promoting the widespread use of renewable energies. Renewable energies will contribute to diversifying energy sources, and in recent years, the fall in prices has made it easier to turn a profit from renewables. According to the International Energy Agency (IEA), if solar energy is generated on all land surfaces of the earth, the total amount generated would be 23,000 terawatts annually. This is an incredibly vast amount of energy given that it is 23,000 times more than the one terawatt of power per annum generated by 1,000 nuclear reactor units with an output of one million kilowatts per hour, 24 hours a day for 365 days. Of course, it is not possible to cover the earth’s entire land mass with solar panels, but an extraordinary amount of energy could be generated even if we only consider solar power generation for cities and surrounding areas. At present, coal accounts for our largest amount of reserves as a major energy source. Solar power generated only by cities and surrounding areas can generate energy equivalent to the total amount of confirmed coal reserves mined each year.

Japan’s energy policy shifted from coal to oil after the war, and the country relies almost exclusively on imports. Japan also imports natural gas, much of which is converted into electricity. Oil is transported from ports, electricity is supplied by local power plants, and oil pipelines and power transmission networks have been efficiently established. If widespread use of distributed solar power generation or biomass power generation is to be promoted, transmission networks for supply will need to be replaced. There are no existing transmission networks for biomass power, which is generated by burning wood from areas with forestry resources, or by producing methane gas through fermentation of cattle dung, etc. In the future, society will also require infrastructure development and improvements to accommodate electric cars, hydrogen vehicles, and fuel-cell vehicles, which will replace conventional cars, and to provide for efficient nationwide procurement and supply of energy sources suitable for these vehicles. Japan must avoid getting a late start in this 21st century energy revolution by tackling these tasks immediately. France and the United Kingdom have already announced their ban on sales of gasoline automobiles by 2040. Electric vehicles will become mainstream in the future, but in the process of promoting their widespread use, new developments are sure to emerge. Already in places such as France car dealers offer recharging for electric cars at no cost, while cities and towns provide parking areas where electric car users can recharge their vehicles while their vehicles are parked. Measures promoting the widespread use of electric cars are already in practice. Japan must learn from these.

Social systems in Scandinavian countries supporting growth

Shirai:Finally, please tell us about your outlook for developed countries as well as emerging and developing countries. Some have indicated that developed countries are already at a stage of secular stagnation, and that interest rates of close to 0% rather than the standard 3% or 4% of the past are the “new normal.”
On the other hand, in the early years of the 21st century, there was a period when some emerging countries, particularly resource-rich countries, experienced a period of growth due to hikes in resource prices. Later, however, when rises in resource prices settled, economies in those countries tended to stagnate. Even if manufacturing in emerging and developing countries grows in the future, the demand side segment of the pie is limited, and if oversupply occurs, there is concern that countries which made late entries into the market will not be able to grow. As you look toward the year 2020 and beyond, how do you see economic growth for the developed countries as well as the emerging countries?

Nakajima:As I mentioned earlier, division and differentiation in international trade with emerging counties is one approach that may determine the extent to which developed countries can grow in the future. In addition to this approach, innovation in social systems may also offer potential for growth.
For example, Sweden has distinguished itself as a welfare state. At the same time, it is also an extremely strong country in terms of growth. Both the Swedish model of “Welfare for Everyone” and the competitive society model on a par with the model in the United States are supporting growth. Because social welfare offers people a sense of enrichment, people have no anxiety about everyday life. As you can imagine, maintaining a comprehensive social welfare system requires an enormous budget. The country, that is, corporate revenue, ultimately provides the necessary financial resources. In other words, corporate earnings provide the capital funds required to provide generous social welfare, which comes at a cost. In the market of survival of the fittest, companies that cannot provide a place of employment, or cannot pay social insurance premiums cannot survive, and, more importantly, the country does not require them.
As a social system for supporting all people, the Swedish government is putting efforts into enhancing human resources through education, and provides solid support not only in education but also for finding good quality employment. Rather than placing emphasis on maintaining employment, the country’s employment policy focuses on providing superior workplaces for people and skillfully matching “the right people for the right jobs.”
As the breakdown of GDP growth reveals, under such a social system, Sweden’s growth stemming from increased productivity surpasses that of Japan by far. Per capita skills and human resource competencies are boosting productivity. Companies too are making efforts to increase their profitability through added value. As a result, investment is also increasing. Although the population is not growing, overall growth, stemming from investment and productivity is higher than that of the United States.
Sweden’s framework for achieving welfare for all people and the entire country through the cultivation of human resources may become one model worthy of consideration. Of course, becoming a country like Sweden is not the only pathway, and the “new normal” for developed countries does not necessarily have to be geared to making money based on having a trade surplus like an emerging/developing country. It is the role of developed countries to provide what the emerging/developing countries require by enhancing services and, in doing so, raise the living standards in those countries. On the other hand, conditions in some emerging/developing countries are such that they cannot remain solvent with an economy based on the export of resources and cheap labor. In an environment where there is an excess supply of goods, not all emerging or developing countries will necessarily succeed by following the same pattern. Economic reforms to promote growth are important, and enhancing the quality of people by raising the level of education is essential. In developing countries, the industrial structure and social structure themselves are not set up to efficiently distribute income in the first place, and there have been many cases where the gap between rich and poor only widened as a result of distortions in growth.
However, a widening in the income gap is occurring not only in developing countries. Among the developed countries, take a country like the United States, for instance. The gap in income is widening. Rather than income gaps occurring within the same company, income gaps between companies are widening. This is also happening in other developed countries besides the United States. The gap in average income of employees is widening between large companies and small to medium-size companies. Moreover, the widening in the income gap due to differences in education has also has been verified. In that sense, Japan is a unique country. A widening in income disparities was rarely observed during Japan’s postwar economic growth. This is one reason I am paying attention to mass employment. A large number of newly graduated young people from regional areas found employment in the cities, and per capita income increased. However, many of these young people found employment after graduating only from junior high school. I believe that one of the reasons for this was that the disparity in income stemming from differences in education was not particularly pronounced, and this had the effect of curbing a widening in disparities in income. It is my belief that through reforms, rather than mechanisms for enriching a specific industry, specific educational backgrounds, or specific geographical regions, Japan was able to create a system for raising the education standards of all people while skillfully reshuffling people, increasing the national income as a whole and thus avoiding the exacerbation of any imbalance.

Shirai:Thank you very much for your very valuable comments today.

Final Note


On this occasion, I interviewed Mr. Atsushi Nakajima, Chairman of the Research Institute of Economy, Trade and Industry, who spoke about the dawn of an era of surpluses in people, goods, money and energy. In this new era, conventional models for growth may cease to have currency at the national and corporate level, prompting the need for reform in social systems and for a disruptive innovation model. I felt this was a very challenging subject.

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