Transcriber: Reiko Bovee Reviewer: Takahiro Shimpo
I am an economist.
I am also a real optimist on Japan's economic future.
Here I am not talking about whether the next year's GDP
is going to grow by 2 or 3%.
I am talking about the next 5 to 10 years.
I believe that Japan stands at the beginning of a new golden age.
(Applause)
Now it is easier said than done.
In my day job, I travel the world, and I talk to investors.
They are pretty hard-nosed because I'm asking them
to put their money, to put their pension money,
to put their savings in Japan.
So, help me out here. How are we going to do that?
Well, I want to talk a little bit about money.
I want to talk a little bit about innovation.
And I want to talk about demographics and populations,
and hopefully you will agree with me,
Japan has a very bright economic future.
First, let's talk about money.
Money is the most tricky thing because, what does money not do?
Money does not create prosperity,
does not create wealth.
Japan's got new policy makers,
it's got a new leader, a new Prime Minister,
who has ordered the Central Bank
to double the amount of 10,000 yen notes
in the country over two years.
That's nice. There is more money around.
I don't know whether you've seen any fall into your pocket.
Money is tricky, right?
It's kind of like I got this 17-year-old son.
If I double his weekly allowance
from 2,500 yen to 5,000 yen,
does that increase his chances of getting into Kyoto or Harvard University?
It's tricky, right? But you know what's good?
I know if he gets 5,000 yen instead of 2,500 yen,
I know he will have more fun.
Fun is actually very important to get the creative juices flowing
to get innovation and to get new ideas.
This is where Japan shines.
People talk about the (Japanese) "Ushinawareata nijuu nen."
"Oh, my god, it's all being terrible."
This is backward-looking. You want to look forward.
And to create prosperity, to create wealth, to create that new golden age,
Japan is in a fantastic position
because it is the innovation power house of the world.
Look at this chart, one data point
I want you to remember: 3.4%.
This country, Japan spends 3.4%
of GDP, of its national income,
on research and development.
You can see in the chart that, structurally,
over the last generation, over the last 30 years,
structurally, investing in research and development
has actually increased.
This is very important because it means
that indeed, Japanese companies, Japan as a nation,
has continued to invest in the future.
This is very powerful when you look at some of the details there.
What do you see?
You see that in Japan
about 80% of the investment in research and development
is done by private companies.
In America more than 50% is done by the government
that military industry complex which you and I cannot really invest in.
Here in Japan, 80% of research done by private companies
that you and I can actually invest in. This is phenomenal.
If you look at the track record, it is absolutely brilliant,
I mean, sometimes, I get this push-back: "Oh, Jesper!"
"Japan, Japan, Japan!
Is a country they haven't invented anything since the Sony Walkman."
(Laughter)
I'm like: Really?! What kind of car do you drive?"
"Oh, I drive Lexus." Right?
If you look at the car industry, Japan is unbelievably innovative,
very, very prepared to take risk and still very much a global leader.
It's also in very unsuspecting industries
that Japan remains very innovative and creative.
Ship building. Ship building? That's not IT. That's not sexy.
That's 19th century "monozukuri," but over the last 3 years
the market share in the world by the Japanese ship builders
has actually shot up very, very strongly
taking away the market share from the Chinese.
Why is that?
Because Japanese ship building companies have invested in engineering,
specifically, with the ship building industry
the price of oil is very expensive, and ships are stinkpots.
There is a lot of CO2, a lot of pollution that goes into ships.
So, globally, we have (Japanese) "Kinsei kyooka,"
we have a tightening of regulation,
which means we now need to build Eco-ships.
Japan is the leader in building ecologically friendly ships
that have an energy efficiency that is up to 50% larger, 50% better
than it is in the People's Republic of China or elsewhere.
So this relentless focus on research and development never got lost.
That's the great strength. I can give you another example.
You know smartphones?
The first generation, almost no components,
were made by Japanese companies,
but if you look at the latest generation that just has come out,
we reckon that about 60% of the components are made by Japanese companies,
and can only be made by Japanese companies
because of the degree of precision that you actually have.
So here you go.
Innovation powerhouse Japan is absolutely very strong.
That's a good basis to have.
It means you've got (Japanese) "Chiteki zaisan,"
you've got the intellectual property.
Now, population.
What do we do with the population?
That's the big pushback I always get:
"How can you be bullish on a country where in 350 years
only 49 people are going to be left?"
(Japanese) "Jinkoo genshoo," the population is declining
but listen, I'm not interested, you're not interested in the next 350 years.
It's irrelevant; we are interested in the next 5 to 10 years.
And here, Japan is in a demographic sweet spot.
Let me repeat this: demographic sweet spot.
Do not believe all this talk about:
"Oh my god, the population is declining, therefore it's terrible."
The population is not declining, the key issue is
that we've got an internal dynamics in Japan that is actually very favorable,
that is we've got a generational switch, effectively you've got the "Dankai,"
you've got a Mick Jagger generation retiring,
--if you prefer John Lennon, that's fine with me,
but he didn't retire unfortunately--
and the Mick Jagger generation is beginning to retire, right?
And against that, you've got the younger generation in short supply.
One of my favorite statistics in Japan is the fact that over the next 5 years
every year, the number of 25 to 35-year-olds
is going to decline by 210,000.
That's fantastic news!
I want to be reborn as a 23-year-old Japanese
because I am becoming a scarce resource, and where there is scarcity,
the price, the value, is going to start to be bid up.
In Japan you have seen over the last 20 years
a big change in the labor market.
That change in the labor market was the development
of the part-time work, of the "Hi-seishain culture."
You're aware, today, 40% of the people who receive a paycheck
are only employed on a part-time basis
that is up from 20% 20 years ago.
So this is how Japanese companies save cost.
It also means that of the young generation
almost 1 in 2 people has never had a full-time job.
But what is happening now?
Because the Japanese youth population is beginning to decline,
slowly but surely, these young workers,
this young generation of Japan, is being arbitraged back,
is being offered full-time contracts rather than part-time contracts.
You were seeing it over the last 12 months,
more and more companies are beginning to rehire part-timers
on a full-time basis.
That is the most important, the most effective dynamics
that Japan has ever had.
I will make a prediction.
In 5 years time, you will find
that the number of the part-time workers will not be 40%,
but it's going to be down to 25%.
You've got to remember, every time a part-time worker
gets hired on a full-time basis, what happens?
What is the difference in pay
between a part-time worker and a full-time worker?
It's almost 50%.
So the annual income actually goes up by 50%
It's almost "Shotoku baizou keikaku," but this has nothing to do with Mr. Abe.
This has something to do with that is driven
by the population dynamics of Japan.
This is very important.
As I said, Japan as part-timers will be full-time workers,
what happens is a new middle class is going to emerge.
Because obviously if you are a full-time worker,
you've got job security.
If you are a full-time worker, you don't just go out on date,
but you can actually ask the girl or the boy
- because it's the girls that are going to get transferred
from part to full-time workers -
you can ask the boy to get married.
Part-time workers really don't get married.
So I think we are at the beginning of a virtuous cycle here
because of the shortage of labor in Japan.
At the same time, the fact that you do have this flexibility
of pulling part-time workers back into the domestic economy.
That's very important because what it creates
is something no other advanced industrialized economy has to offer,
which is a domestic demand dynamics
that is independent of what happens to exports.
So, in my opinion, you've got a little money floating around
- so there's a 'fun and feel good' factor-
you've got a lot of "chiteki zaisan," you've got a lot of intellectual property
with all these research and development,
plus, you've got this changed dynamics in the labor market
which is going to produce a new middle class.
So what's not to like? It simply is the greatest country on Earth.
Of course the real reason-- and now, I need you to help me.
Because one of the things that is spectacular about this country is
that it is the only country that has a currency
that floats on water.
(Laughter)
If you take a one-yen coin, you can put it on water
(Laughter)
and I challenge you,
either you convince me that I am wrong in my bullishness on Japan
or you send me a picture that a yen
is actually floating on your favorite water.
Thank you very much.
(Applause)