Commentary / Japan

The lessons of Davos 2018 for Japan

by Heizo Takenaka

This year’s annual meeting of the World Economic Forum was held in Davos, Switzerland, for about a week from Jan. 22. The theme of Davos 2018 was “Creating a Shared Future in a Fractured World.” The meeting, attended by about 3,000 world economic leaders, is closely watched every year. The latest meeting attracted particular attention for the appearance of U.S. President Donald Trump and the attendance of heads of states from 70 countries around the world. The Davos conference this year also left several important lessons to Japan.

The first is that no time should be wasted in reforming Diet proceedings to boost Japan’s presence in the world. The prime ministers and presidents of six of the Group of Seven countries attended this year’s meeting — except for Japan. The Davos conference is, so to speak, what an investor relations event is for a business enterprise. It offers each country a prime opportunity to exhibit its presence and gain attention.

Last year, Chinese President Xi Jinping became that country’s first head of state to attend the conference and demonstrated his presence. At this year’s meeting, Indian Prime Minister Narendra Modi took the podium in the opening ceremony, and his government set up an Indian pavilion outside the venue to grab participants’ attention in the early part of the conference.

Later in the conference, top leaders of major countries including Germany, France, Britain — in addition to Trump — took part. Regrettably, Prime Minister Shinzo Abe was not among them.

That was because of nothing other than the constraints imposed by the Diet schedule. The regular 150-day legislative session started Jan. 22, the same day the Davos meeting opened. Not only the prime minister but other Cabinet members were required to be present in the Diet. At the Davos meeting, there was an important announcement that a sister organization of the Center for the Fourth Industrial Revolution, headquartered in San Francisco, will be established in Tokyo. Trade and industry minister Hiroshige Seko should have made the announcement, but he could not go to Davos because he had to be present in the Diet. In fact, he answered questions only once during the four days that he was in the Diet. If he was unable to attend the key international meeting just for that, it means that the constraints imposed by the Diet schedule harmed national interests.

Nagatacho, the center of Japan’s national politics, is dominated by a peculiar sense of values. It dictates that the Diet schedule take precedence over anything else. Certainly, the parliament, in which people’s representatives gather, plays an extremely important role in a democracy. The Constitution says the Diet “shall be the highest organ of state power.” If ruling parties mention changing the Diet schedule, the opposition camp will accuse them of making light of the Diet, so the ruling parties refrain from exciting the opposition over the Diet schedule in favor of smooth proceedings.

That may be common sense in Nagatacho — but it clearly deviates from the common sense of the world and society at large. It stands to reason to change the Diet schedule by one or two days for the sake of an important international meeting that relates to Japan’s national interests. That it cannot be done in the Diet reflects the problem Japan’s politics face. The biggest lesson from Davos 2018 is that the old sense of value that gives absolute importance to Diet proceedings must change in order to maintain and increase Japan’s presence in the international scene.

Another lesson from the Davos meeting is that competition is intensifying among countries in the arena of policies related to the Fourth Industrial Revolution and that Japan needs to step up its own reform efforts.

In her speech to the conference, German Chancellor Angela Merkel, observing that the world economy has entered an era of big data competition, articulated a keen awareness of the competition with China, which is building a massive database in an effective joint project between the state and its businesses. Indeed, China, in stark contrast to Japan’s cautious position, is actively pushing ahead with a transition to a cashless economy and approving of ride-share services, and creating many global companies that threaten the U.S. lead in new fields. The fundamental question being asked is how you compete with state capitalism as represented by China in this Fourth Industrial Revolution.

French President Emmanuel Macron said he will raise his government’s education spending to 5 percent of GDP so that the country can be a leader in the new age. He also pledged to cut the corporate tax rate from the current 33 percent to 22 percent to boost French competitiveness. Clearly he is conscious of Trump’s corporate tax cuts (from the prevailing 35 percent to 21 percent).

What was impressive about British Prime Minister Theresa May’s speech was her unambiguous statement, citing Uber by name, that ride sharing should not be rejected even if there is apprehension about the new service. That makes a big difference from Japan, where ride sharing is making no progress due to opposition from vested interests.

Trump, who spoke on the last day of the meeting, also stressed the importance of corporate tax cuts in the age of the Fourth Industrial Revolution. It was impressive when he said, “America is the place to do business — so come to America where you can innovate, create and build. … America is roaring back — and now is the time to invest in the future of America. We have dramatically cut taxes to make America competitive.”

What’s important is that top leaders of other countries are taking the initiative to promote policies, such as deregulation and corporate tax cuts, to propel the Fourth Industrial Revolution forward, with a keen sense of the importance of these policies.

Unfortunately, Japan faces many challenges that need to be tackled, ranging from a total ban on ride sharing and a fairly high corporate tax (kept at just below 30 percent despite the cuts made as part of Abenomics). The government needs to recognize the difference with other countries in its seriousness toward economic reforms and take much deeper steps.

Heizo Takenaka, a professor emeritus of Keio University, served as economic and fiscal policy minister in the Cabinet of Prime Minister Junichiro Koizumi from 2001 to 2005. He is a member of the government’s Industrial Competitiveness Council.