Joi Ito's Web

Joi Ito's conversation with the living web.

This is the second panel on Japan. This panel represents more of the more established figures in Japan. The Challenger is Paul Krugman, the moderator is the Chairman of Fuji-Xerox Yotaro Kobayashi, Professor Takatoshi Ito, Masayuki Matsushita the Vice Chairman of Matsushita Electric Industrials, Junichi Ujie, President and CEO of Nomura Holdings Inc., and Malcolm Williamson, President and CEO of Visa International.

This panel is focused primarily focused on more pressing issues than our panel and is more economics oriented.

Here are some notes.

Professor Ito presented a variety of short term and mid-long term scenarios.

Williamson "You can defy gravity for awhile, but eventually you fall. The longer you defy gravity, the harder your fall. This is what is happening to the Japanese banking system... Good bank mergers can reduce costs where 1+1=1.5. In Japan, bank mergers end up with 1+1=2.5. Banking is the most important issue. I've never seen a country come out of a recession with a bankrupt banking sector, which what I think is what Japan has."

Mr. Matsushita is saying that industries that were protected now suffer from weak management, elevated cost structure and dependency on government grants and subsidies. The elevated cost structure reduces the global competitiveness of these industries. Japan needs to supliment it's dwindling work force with skilled foreign workers and students. Do not limit internationalization to a select sectors.

Mr. Ujiie is saying that the Nikkei is hovering at the 8000 yen level, the level 20 years ago indicating the markets negative feeling about the probable scenaro. On the other hand, the policy makers seem to be following Ito-san's best case or base case scenarios. It is beomcing popular in academia and policy to talk about inflationary measures. Such initiatives must be accompanied by an increase in money supply. There must be regulatory reform along with monetary policy. For instance, tax reform.

Kobayashi-san is asking whether banks are taking actions in response to Takenaka's plan. Are the current signs of change in the banks a real sign that the Japanese economy is really moving towards reform, or are these changes real?

Professor Krugman says "no." Deflation is key. Deflation is not responding to conventional monetary policy and the analogy with the UK is not a very good one. They did not have a real deflationary problem. What kind of structural problems cause a deflationary tendency. Most problems cause inflation. The cause of a deflationary tendency. Non performing loans may not do much for the economy and it isn't clear that it isn't just a result of the deflation problem. People blame the banks for the fact that an increase in a monetary base does not result in increased output from banks. Well, if banks have increased money supply at 0 percent interest, there is a good reason just to keep in reserve. Regarding industry structural reform... "sometimes a kick in the rear helps gets us going, but sometimes it just hurts." It's unclear whether it will help the economy. He sees two upside and two downside scenarios. Upsides are new technology forms the basis for recovery or a radical expansionary policy. Down side is a full deflationary spiral or government defaut to which deflation plays a major role.

Kobayashi-san asks the panel for action ideas.

Ujiie agrees with Ghosn about execution being key. We have had a plan. Lets stop debating and implement.

Matsushita-san says that he doesn't think that structural reform will fix deflation, but that such reform will be necessary for companies to become competitive internationally which may indirectly help the economy, but that he is not a macro-economist. (Sounds like something I would say...)

Professor Ito thinks that the most important thing is the leadership of Prime Minister Koizumi who can coordinate all of the monetary policy.

Mr. Williamson agrees with Professor Ito and thinks that Professor Krugman sounds a bit defeatest. Leadership is very important. Korea and UK were both highly influenced by leadership in getting out of the crisis. It is a combination of factors, but the biggest thing is the change in psychology of the people who don't see the problem.

Question from the floor: Is there enough political will to give a leader the power to establish a political mandate which is necessary for political leadership.

Ujiie-san thinks that the people are prepared for the pain so the people have given the political mandate for structural reform. It is unclear exactly who takes the burden.

Krugman thinks that the structural may be exaggerating the pain that is required. It may not. Maybe it is just rolling printing presses is what is required, not blood and sweat. Maybe it's not leadership but just clear thinking that is required. Japan may stress the leadership and pain and make it much more complicated than you have to make it. Leaders will try, they will fail, there will be pain and we may just have another lost decade.

Question from the floor: Where did the "fire in the belly" go that used to be in Japan.

Professor Ito says that there is no sense of crisis on the streets.This isn't a generational change. It is the reflection of a more pessimistic view of the future. It's a reflection of macroeconomic pessimism and stagnation.

Question from floor to Professor Krugman: But the "new technology saves Japan" scenario. Will the banks fund it?

Professor Krugman says he thinks so. I commented that VC's in Japan are few and big companies are focused on developing very large business units that are core and innovation in the form of ventures is stifled. Ujiie-san mentioned that there are some attempts such as the angle tax law, but they are so poorly written that they don't work. Mr. Williamson thinks that it is an issue of a lack of VC's, not a banking problem.

Kobayashi-san is wrapping up by saying that the leadership of Koizumi is key in delivery of the package a reality. Commenting on our session... the system may seem broken now, but it used to work. The "iron triangle" is losing confidence and is maybe a source of political will to change. Maybe this enough to make the Prime Minister to listen to the micro side and maybe he can listen to Professor Ito and Krugman on them macro side.

Yu Serizawa and her team worked on some great slides including the problems that we all traditionally talk about, a picture of Koizumi-san trying to attack the difficult problems on the surface, and the dysfunctional democracy which resists change.

The members of the panel were Carlos Ghosn, President of Nissan, Nobuyuki Idei, Chairman and CEO of Sony, Jiro Tamura Professor of Law, Keio University, Motohisa Furukawa, politician, Oki Matsumoto, the CEO of Monex and me. The Moderator was Karl T. Greenfeld, Editor of Time Asia.

Reuters did a great summary

Here are some of my thoughts from the panel.

Japan has tended to talk about problem in Japan that are easy to understand in the Western context and doesn't generally discuss domestic issues at Davos. Today, discussed some of the more complex issues that are very important and are the cause of some of the more well known problems. Japanese tend to feel to feel that social issues are best discussed and solved at home in a more gradual way and that the West would never understand them. I think that trying to help the world understand the issues that Japanese believe only Japanese would understand is an important step in opening up Japan.

After we spent close to 40 hours trying to come up with a blueprint for Japan, we realized that the plan was the same plan that everyone always comes up with. Actually, most people in Japan agree on the plan. The problem (as Mr. Ghosn pointed out later) is that 95% of the issue is execution. The problem is that Japan has a system that is resistant to change and has given most of its execution authority to the administrative branch. (As Tamura-san explained eloquently.) We need to focus on the basic cause of the problems which we have identified as a dysfunctional democracy and a lack of diversity. We must also understand the reason Japan has such execution problems. Idei-san talked about Japan being a refrigerator where domestic companies and the administration freeze change. He also talked about Japan's "middle age crisis". I thought this was a great phrase.

Tamura-san and I talked a lot about democracy. Multiple points of authority, competition of ideas, critical debate. Tamura-san mentioned that the judiciary in Japan is neutral and fair, but so small that it is weak.

Carlos Ghosn said that he thought the problem was that the vision for Japan was not clear.

Anyway, I said what I usually say here which is that we need a revolution, not reform. To use Idei-san's words, a quantum leap. Democracy requires that you trust the people. Mass media focuses on ratings and then cause a kind of populism that makes people feel negative about the ability for people to be rational. In fact Japanese are rational and all we need is the media (or the Net) to focus on the real problems and wake the people up. Carlos Ghosn said that EVERYONE at Nissan knew that they were on a burning platform. After they got all of the facts out, it was all-hands-on-deck getting the company running. No bullshit. Idei-san suggested we focus on tax issues. I agree that this may be good. Follow the money. Tax is what fuels the administrative power. Shed light on the relationships. Show where peoples' money goes. Then maybe people will wake up and have a Boston tea party. I think that it is, at the end of the day, about trusting the public and empowering them. Tamura-san said that we already have all of the laws of a democracy. Just no power or will to execute.

So my flu is basically better, but I'm really nervous today. Just when I thought I was getting over my chronic butterflies, I've got them again. In a few hours, I'm the first one up to bat on the panel about the Blueprint for Japan. It's going to be in the big room here and is a full blown plenary. Later in the evening, I will be the coordinator at the Japan dinner. For some reason, this year it's quite popular and there are over 200 people registered. The coordinator is a position that professor Takeuchi created where he acts like a talk show host going around the room asking for comments. He's VERY good at it. The Japan dinner became very popular after they changed to this format. I'm definitely not going to be as good at it. I tried to get out of it, but Idei-san told me I should do it. (gulp) Then, tomorrow morning, again in the big room, I am the "challenger" to Heizo Takenaka, our Minister for Economic and Fiscal Policy and Michael Porter is the moderator. Takenaka-san will be coming just for the day and it is a short 30 minute session. I like Takenaka-san at lot, but my job is to "put him on the spot." Hmm...

So maybe this is what I get for saying that they never invite me to speak at Davos. At least it's all at the beginning. It's all fun stuff after that. The other good think is that since they are both plenary sessions, they are the part of Davos that will be covered by the media, which means I can blog them. ;-)

In Marc's response to my response to Russell Beattie's comments on moblogging he talks about "Shared Reviews servers can house moblogging reports on various resturants, movies, clubs, museums, art galleries and any meatspace location."

So there is another very important part of this "location thing." Servers should be distributed too. You should be able to talk to a local server. A server in your restaurant, billboard, vending machine, car. Local servers can be higher bandwith and can have lots of cool local features. You can leverage things like bluetooth and IR on devices that don't talk location very well. This decentralization is important and relates in a weird way to Dave and Evan's discussions about RSS aggregation. So what if you had RSS aggregators where you had to physically be there to see stuff. You had to be able to physically get into a nightclub before you could see the news feed for what the club members were doing... It sounds backwards to what the Net is about, but I think that there are some applications. It definitely helps on the privacy security issue if certain kinds of information are stored only locally in servers that you trust.

I think unless you're a student who's always out and about or a mover and shaker like Joi there's not a whole hell of a lot to moblogging. It's more of an instant online scrapbook than a real communications medium. With blogging there's that level of interactivity which makes it very interesting. I read blogs, I copy permalinks, I write my posts and post links, and I check my referrers for people who linked to me. With moblogging, I take a picture, send off an email and then I'm done. There's nothing else to do - no interaction. Photos don't link. And browsing the web from a 2" x 3" screen is difficult at best. [..] However there's a kernal of an idea there. I don't think it's the equivalent of weblogging, so maybe moblogging isn't the right name for it. But that power of instant communication from your always-on connected wireless device is incredible. Truly "smart mob" stuff. There's going to be a killer app for these devices soon along these lines, we just need to find what it is. I have my doubts whether moblogging - as a mobile version of weblogging - is it.
I guess I would disagree a bit. Moblogging is still in its infancy. (Although Steve Mann has been doing stuff with mobile camera on the web for a long time...)

I think the cameras and the other attributes of the device will get better. Imagine the Sidekick with a built in camera and a color screen. The new Sharp phone has a full VGA color screen! Foma mobile video phones do 384K. So, the dinky sreen, gritty image, thing will be fixed soon.

Although the conversation style of moblogging will probably be different than weblogging, I think you have other ways to thread things.

For example, if you leave messages and images in locations for people. For instance, if you go to a restaurant, you can push a button and it pulls up all of the interesting things people have written while they were there and threads you to other places those people have been. If you're going to a place, you search for people who have moblogged from that location, finding links to their images and maybe their weblogs. In an "augmented reality" (see my brother-in-law Scott Fisher's work on this. He's actually done a system of using mobile phones to annotate space with content.) sort of way, it's like annotating the real world. That's how I look at it. I'm this little thing crawling around the earth, annotating it with images, sounds and text. You leverage being mobile by being able to add location. This database can be viewed by time/location/ID and we can create meta information from that. (Yes, there are security/privacy issues.)