GISPRI - Global Industrial and Social Progress Research Institute

Report on the symposium for "Beyond the Crisis -Rethinking Japan's Role in Asia-"

10th GISPRI symposium "Beyond the crisis- Rethinking Japan's role in Asia-" was held at the Keidanren Kaikan on March 22, 2000, with the support of Ministry of International Trade and Industries (MITI) and Keidanren(JFEO). The symposium started with the keynote lecture by Prof. Takashi Shiraishi of Kyoto University, followed by lectures and discussions with 12 experts including 4 guests from abroad, and developed to active questions and answers sessions with positive participation from audiences.

Keynote Lecture
"Thinking Japan in Asia" by Takashi Shiraishi (Professor, Center for Southeast Asian Sutudies, Kyoto University)

Since 1950's, Japan has been drawn into, in terms of its security, a hub-spokes relationships between USA and East Asian countries, and in terms of economics, the USA-Japan-South East Asia trade system. After the Plaza Accord, the order of Southeast Asian politics and economics changed drastically. With increased direct investments, establishment of local joint ventures, formation of manufacturing networks, Japan deepened its regional involvement as the region's economic growth and integration. The recent crisis reaffirmed the depth of Japanese involvement. The stability and prosperity of East Asia would benefit Japan and the Japanese government's responses to Asian crisis, such as New Miyazawa Plan, were based on such recognition.
The Asian crisis brought the end to development dictatorships, but to transfer and establish free economies and politically democratic systems would require certain period and processes of adaptation. It would be essential, therefore, for regional stability and growth, to stabilize the political and economic systems of each country, as important factors, and the keys would be the governmental policies and measures and the corporate actions and strategies of each country. Also vital is the system to heighten accuracy in projecting the investment potentials of each country.
In conclusion, it would be beneficial for Japan to support the development of Asian region through intellectual exchanges in economics, culture, and technologies, while securing its own freedom of actions. In the future, we would like to discuss on what kind of role Japan could take in regional governance, and what kind of systems would benefit Korea and Southeast Asia at the same time.

Shira.pdf

Session 1

"Business strategies and industrial cooperation in Asia"

Chair: Hirotsugu Koike (Director of International Dept., Nihon Keizai Shimbun)
Lecturers: Nobuharu Tabata (Manager, No. 1 Asia Section, Toyota Motor Co.)

Tabata.pdf

Lee Poh Ping (Professor, Malaysia National University)

Lee.pdf

Panelers: Naoki Fukushima (Manager, Human Resource Division, Canon Co.)
Yoshihiro Ohtsuji (Director, East Asia and Pacific Section, MITI)

Chair Koike: For Japan as a country economically drawn into Asia, the viewpoint of symbiosis would be a key to bring mutual benefits. We would like to discuss on economic exchanges and business strategies in terms of efforts to realize economic growth potentials of East Asia.

Tabata: Japanese automobile manufacturers, led by Toyota, have responded to the governmental requests and domestic demands of Southeast Asian countries by allocating manufacturing bases to each country. The business expansions before the crisis became excess facilities, surplus in number of employees, and overload of loans. We overcame the crisis through regional mutual supplementation through AICO and the promotion of exports from other regions, while maintaining the local employment. The market would undergo the age of severer competition due to the liberalization of intra-regional trades by AFTA (2002) and the liberalization of inter-regional trades with other regions through WTO framework. In the future, companies would shift to the aggregation, rather than dispersion, of manufacturing bases and have strong interests in each country's program toward liberalization. Radical and simultaneous liberalization might lead to hollowing of industries. Each government were expected to search for the soft-landing of liberalization program through moderate measures.

Lee: Because of Japan's long economic depression, East Asian countries would no longer consider the conventional Japanese model with priority on the results as their model for the future. The age would no longer make the corporate system such as Keiretsu, lifetime employment, or labor union for the company, and effective instrument. Malaysia and Singapore, which intended to develop information technology industry as their industrial policies, were looking at the Silicon Valley rather than Japan. However, these countries would not intend to choose an Anglo-Saxon model prioritizing efficiency over the effects-focused Japanese model. Asia could model the social and cultural values of Japan. Japan would be expected to propose a new model to Asia, which would balance with globalization trend, while maintaining such oriental characteristics.

Fukushima: Asian countries' inclination toward information technology industry (Fukushima.jpg) would be important, but the base of industries was the manufacturing.
Information industry would require fewer employees with higher ability, compared with manufacturing sector.
On the basis of business experiences in Asian region, Japanese management style with emphasis on employment would be useful and applicable to East Asia even for the future. At the time of advanced globalization, each country government should exert efforts in building the integrity and transparency in their policies.

Lee: I would agree with the opinion that Southeast Asia needed to focus on manufacturing rather than information technologies. Before attaining highly advanced information technologies, it would be necessary to nurture technological experts in the manufacturing sector.

Otsuji: While Europe proceeded with the integration toward EU through the regionalization of their systems, Asia seemed to undergo for more market-oriented regional-ization. This type of regionalization was mainly driven by the economic aids from Japan and vertical distribution of trades. Since 1985, however, the expansion of direct investments from Japan built the multi-level structure in trade relationships. ASEAN reformed from a political association to economic integration after the collapse of Cold War structure, and strode toward the schemes of AFTA and CEPT from early 1990's. The start of AFTA in 2002 is forcing local corporations to shift their project strategies. South China economic sphere would likely intensify exchanges and deepen mutual dependency with Southeast Asian economies, establishing a unified economic sphere in the future.
With the ASEAN as one big unit of a market, Japanese companies would need to promote manufacturing base aggregation and redistribution from the current system of small-quantity many-types production style, in order to secure their competitiveness. The forms of aids and cooperation would shift from country-specific types to the cooperation with ASEAN as one unit, and to the aids to build networks within ASEAN. Procurement strategies, such as the increased inter-regional procurement rate, rational use of horizontal networks independent of Keiretsu would be required. Furthermore, the nurturing of local small to medium companies, and associated and supportive industries would become important regionally common issues.
As the tasks for Japan, its efforts in addressing the aging society, energy and environment, and the measures for the market unification in information age would present a good model for Asia.

Chair Koike: The Asian crisis motivated corporations to rebuild business strategies in Asia, and such strategic changes would further accelerate the involvement of Japan in Asia. The development of such spiral process would help to project the flow of regional unification. The economic liberalization ongoing and progressing in Southeast Asia, which fast becoming the manufacturing basis for Japanese industries, would anticipate the region's direction toward more global manufacturing bases. Through the market development and economic liberalization, regional competition could intensify.
Although Japanese corporate models seemed to find its limit of effects, Japan could still rebuild a new model by its own efforts, which would be attractive and inspiring in terms of cultural and social aspects, and could be responsive to information technology development.

Session 2
"Asian financial architecture"

Chair: Kaoru Sugihara (Professor, Economic Faculty, Graduate School, Osaka University)

Lecturers: Chalongphob Sussangkarn (President, Thailand Developmental Research Institute)

Chalong.pdf

Hans-Eckart Scharrer (Vice President, Hamburg world Economics Research Institute)

Scharrer.pdf

Discussant: Hajime Shinohara (Deputy Governer, Deposit Insurance Corporaion of Japan)

Chair Sugihara: We would like to discuss about the Asian monetary system and AMF in this session.

Chalongphob: Thailand's foreign exchange reserve at the end of 1996 was equivalent to about 5.5 months worth of monthly import total, but it hit the bottom by the first half of 1997. We could say that there were some defects in the assessment method of foreign exchange reserve. The causes of financial crisis was the rapid increase in short-term overseas liabilities, due to the opening of financial fund market. To prevent the recurrence of financial crisis, it would be necessary to develop more integrated financial policies, to establish long term capital fund market within the region, to develop management system for short term funds, and to promote the integration of regional economic and financial systems based on long term views. AMF might not be effective in preventing the crisis, and it would be worthwhile to study the possibility of establishing an organization that could promote monetary coordination and establish regional financial fund market. However, like the case of USA-controlled IMF, the idea of AMF controlled by Japan would not be acceptable either.

Scharrer: The success of European Monetary System was due to the political cooperation between Germany and France. In the case of Asia, however, it would be difficult to realize the agreement and tie-ups between Japan and China. It seemed that Asian countries minded stronger for the maintenance of own money, so the basket of monetary interlocks broader than the dollar's interlocking would be preferable. Float system could be an option. However, the foreign exchange market should have greater flexibility and wider range, and should be under transparent market competition rather than the governmental control.
The establishment of multilateral funds or bilateral funds and the increase in the IMF funds could lead to moral hazards and instability in short term funds, so would present adverse effects in crisis prevention. It would not be possible to expect much for the regional monitoring function. What would be needed for Asian financial system could be to increase the flexibility of foreign exchange market, to strengthen the transparencies in financial policies and corporate governance, and to allow the participation of private sector in crisis prevention. Japan should lead for the reformation in this field.

Shinohara: Asian crisis was the crisis of capital accounts. It was not the foreign exchange crisis, nor the governmental bankruptcy. IMF prescription applied to Latin American crisis of governmental bankruptcy type was not effective in resolving the Asian crisis. Indicating the dollar-peg system as the cause of the crisis was for the convenience of the United States, which recommended the dollar-peg system before the crisis. AMF scheme would be to build regional functions to compete against dollars like the case of Euro sphere. It would be possible to consider the establishment of three types of organizations. One is the networking of monetary authorities such as the Asian version of BIS. Then the installment of a settlement organization for Asian currencies under AMF organization, in order to promote the mutual use of Asian currencies. Thirdly the establishment of research institutes to monitor private debts and to control short-term funds, which could have the capacity to provide the place to coordinate macro economic policies and to review the theoretical loan conditions in response to crisis. Japan should take a leading role in building consensus on the establishment of these organizations, as well as in bearing costs and offering contribution for their installments.
Yasumoto: I could agree that AMF would need the Asian version of BIS, or the settlement institute for Asian currencies. Increased flexibility in currencies and each nation's shift to currency board system might diminish the need to use tax money for stabilizing national currency. Each nation should bear the risks to peg own currency against US dollar, and should not expect dollars to take a blame for it. Scharrer: The management of fund flow would depend on the degree of control. To regulate the incoming flow of funds might not be effective in controlling the exchange rate fluctuation. There were some agreeable point in the idea of AMF, but it would be more importance to strengthen the IMF system as well as to evaluate its rescue packages.
Chalongphob: AMF functions should be restrictive. In the future, there could be some conflicts of interests as well as economic confrontation between South East Asia and Japan. Therefore, further and continued discussion on the crisis management would be necessary in terms of AMF's role.

Shiraishi: I would not agree. The interests of USA in Asia would be the pursuance in financial aspects. On contrary, the stakes held by Japan in Asia would associate with industrial development. So that Japanese interests would conform to the economic development of South East Asia far better than USA interest would do.

Session 3
"Asia in the 21st Century and the role of Japan"

Chair: Takashi Shiraishi (Professor, Center for Southeast Asian studies, Kyoto University)

Lecturers: Ann-Mary Murphy (East Asian Institute, Columbia University)

Murphy.pdf

Kozo Kato (Associate Professor of Law, Sophia University)

Kato.pdf

Discussants: Kaoru Sugihara (Professor, Economic Faculty, Graduate School, Osaka University)
Akinobu Yasumoto (Executive Director, GISPRI)

Chair Shiraishi: Asian policies of the United States were pointed out as long term strategies or even the conspiracy. What actually were their policies? Please discuss their policymaking processes from the viewpoint of their national politics.

Murphy: Asian policies of the United States have no strategies. The problem was that USA's vision of Asia did not conform with the vision of Asian themselves. Also our policymaking processes embrace many contradictions. USA expected Asia to secure democracy, economic prosperity and peace, and preferred the establishment of market economy as well as the resolution of regional conflicts without military forces. The barriers for such vision would be the reluctance toward democratization and market economies among South East Asian countries, as well as the weaker diplomatic capability of the Clinton administration (diplomacy as the tool of leverage toward congresses, policies and human resource appointments neglecting Asia, fluctuation of diplomatic directions).

Chair Shiraishi: Please grasp the role of Japan in Asia, compared with the case of Germany.

Kato: Both Japan and Germany were the "states of commerce", but their mutual dependencies in international economic system differed significantly. Germany had trade relationships dominated by OECD countries, particularly the western European countries, and their direct investments were focused on Western Europe with minimum investment directed toward developing countries. Japan, on the other hand, actively pursued aids for developing countries using its ODAs and had extremely high dependency on the existing international economic system. Japan could have structural hegemony over the South East Asia, but called for regionalism in its recognition of weakness in mutual dependency relationships. Furthermore, the weakness of Japan's position in securing the energy resources were apparent in its dispersion of supply sources as well as in the efforts for the technological development in energy alternatives. In terms of economic development for Asia and Japan, it would be especially important how Japan could revise its existing course of "opened regionalism" to conform with the new upcoming age. The problem would be the consensus building toward such revision. It would require wills of people, and could not rely on market forces.

Scharrer: The reconciliation between Germany and Europe were led by France. Germany adapted the currency float system even before the Nixon Shock, and were able to develop independent monetary policies. Presently, a new economic system was brewing in Germany. The end of "Deutsche AG" system could be seen in the growing attempts of corporate acquisition and mergers, such as the case of Bordaphone, and Deutsche Bank, resolving stock-sharing, concept of preferential treatment of shareholders, and the issuance of permanent residency permits. In European experiences, if the relevant countries reconciled and the countries have equivalent level of stakes, regionalism would succeed and function.
Sugihara: Since the opening of the country and the Meiji Restoration, Japan always were the part of Asian commerce. East Asia's monetary system should not be converged as IMF suggested. Japanese trade policies were omnidirectional but in reality, its trade with Asian countries grew at significant rate, accelerating Japan's Asianization. USA was in the middle of shift toward regional utilization strategies and Japan's dependency in ASEAN and APEC would mean to go under the USA's control.

Kato: Inter-regional trades were rapidly expanding except in the case of Japan, and Japan continued to depend on USA as its trade partner. In this term, it would be more likely called "Japan and Asia." The base of Japan's diplomacy inclined toward the United Nations rather than toward APEC.

Yasumoto: The argument that higher regional dependence of Japan might lead to the vulnerability as a nation and for the region would be quite doubtful. Asia might need a new system and what we would need to study was the structural foundation of such a new system as well as the existence or non-existence of know-how. Asian democracy and market economy might be imperfect, and it needed the concept of efficiency and fairness. If Japan was to lead Asian development, it would require strong determination and agreement on how much cost to bear. The deepening of mutual dependencies with Asian countries would necessitate Japan to shift toward more creative industrial economy from mere manufacturing economy, to accelerate educational advancement, and to free itself from the catch-up type economic structure.
Questions from the floor: Prior to the discussion of "Japan's role", shouldn't we proceed with the restructuring of Japan itself, which provided subsidies to agricultural sector that consisted only 2% of Japan's GDP.

Kato: Regarding the cost issues, Germany reevaluated its Marc in 1961 and contributed to European currencies. Japan has not made any such efforts. Whether to pay up for the costs would be the question to be asked in the future. About the agricultural subsidies, Germany paid out the largest amount of subsidies to EU. In case of Japan, whether to pay out to Asia would be the question.

Murphy: The United States would support the construction of regional governance in Asia as long as it conformed with American concept. ASEAN countries did not expressed the requests for USA's supports in public because of the consideration for China, but eventually it would be necessary to have discussion among relevant countries including China, and the decisions would be made there.

Kato: On contrary to the France's renunciation of sovereignty for EU integration, China had strong consciousness in its sovereignty. For a time being, it would not likely be buried in regionalism.

Chair Shiraishi: All the problems returned to the question of how Japan should change its domestic system. It all depended on how we were to restructure national systems by what kind of political wills, in order to address important issues of not only industrial policies but also agricultural and educational policies.

10th GISPRI Symposium