 So maybe we start, at least the door open in case more people come from another appointment previously. We're very happy today to have with us Jesper Kahl, who many of you know, or some of you have met already before because he has an affiliation to OIST, let me very briefly introduce him. Jesper came to Japan in, well in 1986, in the 80s of the last millennium, immediately became one of the top strategists and economists in Japan. Until 2015 he worked as a chief strategist and head of research for the U.S. investment banks of JPMorgan and Merrill Lynch. And currently he serves as the expert director for the MONEX Group and the Japan Catalyst Fund and holds a position in several Japanese government and corporate advisory committees including to Tokyo's governor's Yuriko Koikus advisory board. In 2022 he was appointed as the global ambassador for Tokyo's Financial Center Initiative and he has many, many more affiliations and accolades to his name. In particular he has his own sub-stack called the Japan Optimist, which is highly readable and most important we are lucky to have him as a member of the OIST boards for a couple of years now and hopefully for a couple of years in the future. Thank you very much for coming. Thank you very much for giving us this presentation on capitalism that works. And we're super looking forward to what you have to tell us. Great, Tomas. Thank you very much. Hello. Nice to see you all. I must say I'm a little bit embarrassed. You know, you all scientists. I'm barely an economist and you know, I think it was Roosevelt, the old American president who said, ah, economists talking about economics. That's like peeing in your pants. Feels hot to you, leaves everybody else cold. Right? But there we go. What I want to do is just give you a little bit of an overview and I want to start at the very, very big level, sort of two or three forces that I think, you know, are shaping the world or that the world is trying to grapple with. And then we dive into some of the Japan specifics. And hopefully you'll walk away with a little bit of a sense that, yes, you know, Japan actually is capitalism that works and that there's plenty to be optimistic about. Like the first big force, right? You know, is look, I mean, you're familiar with this. When the telephone was invented to reach 50 million users, actually took 50 years, right? The internet took seven years, right? Recently last year, chat GPT was 38 years. And it's good to know that the winner is a Japanese product, right? I'm still very fast. But the point being that, oh, the world is changing. Well, maybe the world is changing, maybe the world is not changing. But what is certainly changing is this information overload that we're all being bombarded with, right? And sort of sorting out information overload. What is important? What is not important? What is real? What is fake, right? That's, I think, one of the big challenges that, obviously, the world is facing. Closer to home on economics. Anybody know what this is? This is what economists call the elephant chart. And what this is, it looks at global household sector incomes. So it's not GDP, which includes the government and corporations, but it's you and me, the people. And this looks all over the world. Over the last 20 years, effectively, the mean growth was around 28% nice. And then what this thing does here, it looks at the distribution from the bottom 5% all the way up to the top 5% of income earners. And you get this elephant chart. Now, what is interesting, and the point is this, if I take away the People's Republic of China, which, as you know, over the last 20 years was this enormous growth engine, right? If I take away households in the People's Republic of China and I see that growth was not 28, but it was only 11%. And more importantly, from the 50th percentile, all the way up to the 95th percentile, incomes actually fell. So there was actually no growth for the middle class. And I think it's very clear from an economics perspective that the reason why you have Trump, why you've got social disgruntlement, is because basically outside of the People's Republic of China, the middle class is getting poorer. And when that happens, there's a feedback loop that obviously goes into politics. And whether that's Germany, whether that's France, whether that's the United States, whether that's the UK. And that's a big challenge that the world is actually tackling with. And then, of course, the third issue is that, wow, now we've got this political consensus led by the United States of America that China somehow is the bad guy, that you and I cannot do business with China anymore. But if you do that, my God, where is global growth going to be coming from? Because a lot of the global growth, not just for households, but also for the economy overall, actually did come from the People's Republic of China over the last 20 years. So you've got this question of information overload increasing information, dissemination, fake news, et cetera, et cetera. You've got a growth problem in the sense of that the advanced industrial economies that the free world, so to speak, does not create economic growth for the middle class. And on top of that, you've got your primary growth driver over the last 20 years basically taken out of the system. These are very, very significant problems. And what I want to talk to you about is that given these overarching constraints, I think that Japan is actually a model economy. So hear me out. How many of you voted for Donald Trump? Sorry, stupid question, right? Are there any Americans in the room? All right, OK, I'm sorry, but it's very easy to pick on America these days. That's OK. I'm an honorary American. I was educated there. My wife's from America. It's a great place. But look, Donald Trump said, oh, the judge of my presidency will be the stock market. As long as Wall Street goes up, everything's fine. I'm doing a good job. Well, it's nice and simple, but it's also stupid. Because anybody who is a leader, whether it's you in your research group, whether it's your parents, whether it's me, my corporate boss, obviously, you do not optimize for one outcome. There are multiple outcomes that you're optimizing for. And in the sphere of economics, you've got freedom, freedom from government intervention and unfair competition. That's very important. You've got equity, a fair distribution of wealth, efficiency, making the most of all the resources, security, very, very important. I mean, Facebook, Mark Zuckerberg, what is it? Destroy and run fast and destroy things. I mean, really, trust me, the older I get, the least I'm in favor of disruption. It's just human nature. You do want security. You do want predictability. And then, of course, yes, there is growth. And my point to you is that Japan is the model economy. It's not particularly good at optimizing for one of these variables. But it's very, very good at hitting the optimal point of maximizing all for all those variables. So I work in finance. Finance is nasty. You guys are lucky. I deal with people who genuinely believe they are the master of the universe. Bill Ackman is a friend. Bill Ackman thinks he can control Harvard University if you follow that reason controversy. Wow. For me, that's called a plutocracy. So but with these nasty people in finance, you've got to do this elevator pitch. I've got, on average, when there's a hedge fund guy, or whether there's a sovereign wealth fund guy, when I engage with them about Japan, I've got about 12 seconds to get their attention. Because they're investors. They can put their money anywhere in the world. Why should I put my money in Japan? And in my case, since I've been in Japan for such a long time, they ask me, what's different? And so over the last nine months, this is the chart that I'm using. What is different is the fact that when you look at the Japanese elite, and if you are from the Japanese elite, Tokyo University, Kyoto University, still it's very prestigious to go to the elite ministries, to go to the Ministry of Finance, to go to Meti. And when you look at the data and say, fine, all these young men and women who joined the elite bureaucracy in their early 20s, how many of them quit while they're in their 20s or 30s? And you can see this is basically a flat line. Nothing happened here. But over the last six, seven years, this is starting to go up. And this tells me, as an economist, my most important resource, which is people. It's not AI. It's not a computer. It's not a technology. My most important resource that creates the bulk of the value is human capital. And humans in Japan, the elite, is actually starting to move. And then, now I've got the hedge fund's attention. Good, I've succeeded. My elevator pitch worked. Then you go to the second layer and say, aha. Where do these guys go? Do they go to Mitsubishi? Do they go to JP Morgan? No. Three quarters of them go to startups. And that tells you that this whole idea of, oh my god, the Japanese, they don't take risk. This is wrong. Something is changing. The elite is now taking risk. And that's something that is new in Japan. And that tells you that there is room for optimism. Because when human capital begins to move, when they are no longer prepared to tough it out at the elite bureaucracy, they are actually prepared to take risk, not going to an established company, but going to a startup, now I've got something that I haven't had in Japan literally since the Meiji Restoration. So Japan is ambitious, is a bastion of stability, and is confident. Sorry, it's another thing that economists have to do. We have to come up with these slogans. A little bit about me. So I was an unsuspecting PhD student at Hopkins University. And one day, somebody walks in and says, hey, how about going to Japan? We pay you $1,000 for three months. And we put you in one of the great Japanese companies. And I said, where is Japan? And the guy said, 9,000 miles away. And I was living with a wonderful woman at the time, but it wasn't going so well. And I didn't have the heart to break it up. I thought, wow, 9,000 miles, that should do the job. So I show up in Japan. And they pay me $1,000 at the end of every month. And so I was at Kyoto University, fantastic. And at 260 yen to the dollar, I was the king of Kyoto. It was fantastic. And then, of course, we have the Plaza Accord, where the United States of America, thank you very much, forces a devaluation of the currency. And as a result of that, I end up being poor. So I had to start to get a job and do all sorts of things. So I ended up working first for a Japanese politician, Mr. Koizumi, who ended up becoming prime minister. I did that for three years. And then I worked for all these investment banks and investment firms here. I joined finance, the great house of SG Warburgs, one of the prominent investment banks of its time. I joined, and the government bond yield was 8% on that day. And then, of course, it's downhill ever since. And as you know, bonds even collapsed all the way down to negative. Real estate. When I show up in Japan, we had one of the biggest real estate bubbles in the world. And then that whole thing collapsed, and it's only now that we're back to where I came from. Story of the stock market's a little bit better. But meanwhile, in the real world, this is the American stock market. So I leave America. And I work in finance. This is American real estate, basically the same sort of story. So story of my life, I mean, hey, at the end of the day, numbers matter. Don't trust my advice. Something went very wrong. But you see this enormous accumulation of wealth in the United States of America, while Japan destroyed more capital in the collapse of the bubble economy than she destroyed during the Pacific War. Despite that, the unemployment rate never went above 5%. Never did me or my wife have to worry about our nine-year-old daughter taking the subway at 11.30 on a Friday anywhere in Tokyo. An unbelievably strong concept. And so let's have a look. Now, who is rich? Very simple, right? It's economics. It's finance. What do people talk about? You're supposed to get rich. OK. So look at this. Household wealth is from the latest report there from UBS. You find the median household wealth, net of liabilities, is about the same as America. Despite this huge discrepancy in asset prices. You look at the distribution. Of course, there are poor people in Japan, no question. But you do see that Japan has a pretty equitable distribution of wealth. And by the way, United States, this was before COVID. You had all these support measures for the poor people in America kick in because of COVID. That number over the next couple of years is going to go back up to around 20%. So it's quite interesting that you've got this sort of dispersion here. Winter takes all. The top 1%, very topical. Oh my god, everything is owned by Jeff Bezos and Elon Musk. Well, again, Japan has rich people, very rich people. No question. But the top 1% only own, excuse me, about 20%, meanwhile this. By the way, anybody here from China? No. But it's interesting, as an economist, the communist system of China and the United States of America, that nasty capitalist system, basically deliver the same result. It's kind of interesting. Now, look at this. I'm often asked, but I had this big fight with Michael Porter. He's like a Harvard Business School productivity guru. He's like, ah, yes, but yes, but yes, but Japan hasn't invented anything since the Sony Walkman. They're terrible. Japan is no longer number one. Japan is number one. If you look at social problems, and there are people who do this for living, they put these indices, mathematics literacy. As you know, a 12-year-old in Japan learns calculus. If Japan slips by one point in the OECD PISA ranking in mathematics, it's a national emergency. Infant mortality, imprisonment, obesity, drug addiction. If you aggregate all of this out, you see that Japan, thank you very much, is number one in the world. By the way, I showed this chart six years ago. I showed this chart to the Trump White House. And they go, yeah, go America! Top right-hand corner. I mean, like I said, unfortunately, it's very easy to bash on America right now. But of course, the key point, and Thomas and myself will very much agree on this, the key point of this data is not that America is on top, that America is at the bottom, and that Japan is on top, but the key point is that Germany is better than France. This is really important. Social mobility, there's another one of these things that economies are supposed to do. What they call intergenerational earnings elasticity, what does that mean? It means, do you have to come from rich parents in order to be economically successful? That's what that thing tries to measure. And again, you see that Japan is in a fantastic position. And it's interesting, the US obviously is the US, but what's interesting and potentially worrying is that in the People's Republic of China, at least according to this data set, if you really do have to be the son or the daughter of a princely to be economically successful, then that's not a sustainable social structure. So that's something that you've got there. Bringing up the bottom, I mean look, you guys sooner or later you're going to start to run bigger teams, you're going to manage things. Motivating the top 10% is easy. They do their stuff anyways. A really superb manager, a really superb leader is somebody who brings up the bottom 10%. And when you look at the data, this is from the OECD, you actually find that Japan is the one country where over the last decade, the bottom 10% have grown faster in terms of income than the average, which is very, very interesting. Why is that? Any guess? Why is that? It's because of my wife. My wife is Cathy Matsui. She coined the term womenomics, empowering females in Japan. And you can statistically show that about 60% of this improvement for the bottom 10% is because of rising female participation and slowly but surely, rising female empowerment. By the way, did you see the news last week? Japan Airlines. The new president, CEO, is a 59-year-old woman who started as a stewardess at Japan Airlines. And don't tell me this country isn't changing. Good inflation. I mean, you know, whoa, Japan has deflation. Terrible. Like, really? Japan of the Consumer Price Index, the basket that measures inflation, of the Consumer Price Index, about one third of all the prices are regulated by the government. For example, Medicare. In the United States of America, your medical costs as a consumer basically double every six years. Now, does your income double every six years? Not while you're at OIST. Oops, sorry. Sorry. I blame the exchange rate. Tsurushimashita. No, but look, I mean, it's interesting, right? In Japan, medical prices, basically for you and I, the consumer fall every year by about 1%, because the government is not afraid to take on vested interest, right? Let me give you an example. Prime Minister Abe, about six years ago, he called into his residency, into the Kante, he called in the CEOs of the four big telecommunication companies, all right? And he had one chart. And that chart showed the price of a 5 giga mobile phone contract. And there was London, and there was Taipei, and there was Shanghai, and there was New York, and then there was Tokyo, 40% higher than the average. And Abe only said one sentence. He said, this is a national embarrassment. Fix it. And they did. Mobile phone prices, as you probably are aware of, have actually been coming down. I don't want to be too romantic, but some of you are familiar with this idea of Mr. Piketty or Karl Marx, that the returns to capital, over time, are larger than the returns to labor. And so the question is, how do we redistribute from capital, from corporate profits, into labor, into the household sector? And the Japanese government is actually doing that. I, in my professional life, I never invest in a Japanese medical company or a telecommunications company or anything that is close to being a public good. Because the moment you make excessive profits, the government is going to force it down to raise the purchasing power of the people, which is very, very interesting. Final point, I mean bureaucracy. You don't know what that is at OIST, right? But look, Japan is the only country in the OECD where we've seen genuine administrative reform. In 1989, they changed from 22 major government bureaucracies into 13. There was some growing pains. There was some uncertainty as to how this is all going to work out, but this is the only country where the financial crisis actually led to structural reform in the institutional framework, which is very interesting. In Europe, after the euro crisis, nothing. In America, after the Lehman shock, there was a tightening of capital adequacy rules, but there was no institutional change. When I was at J.P. Morgan, I used to joke with Jamie Diamond, the big CEO, at J.P. Morgan in New York at any given day, we had 52 regulators, on average, in our office. In Japan, you've got one financial regulator, nasty, pedantic, detail-oriented, but no regulatory arbitrage, while in America, you do. So it's interesting, right? You've got this great socioeconomic system where I actually think the elite, in terms of its ability to renew and its ability to actually reorganize itself and not be afraid to take on big industrial interests, actually works very well. So it's great. We've got a great socioeconomic construct, but we don't have growth. I mean, look at this. How so disposable income? That's your money after you pay taxes. In America, in Japan, basically flat line. So let's have a little look at the Japan reality, all right? You know, I've been in Japan for almost 40 years. You know why I like being here? It's the only place where everybody else gets older, faster than I do. Now, that's obviously not true, right? But, I mean, you're living in a society where one in four is over the age of 70, right? My friends always say, yes, but you're crazy, you're nuts. How dare you be bullish on a country where in 311 years, only 11 people are going to be left? Do I care what happens in 300 years? No. I'm an investor. I'm a business person, right? I'm interested in what happens over the next five to six years. That's a horizon that you can reasonably sort of predict and build scenarios around, right? So Japan has this big aging society. There's no question about it. And obviously, as a result of an aging society, there are things that are changing. For example, in a young society, you basically buy a new car every five or six years. It's a replacement cycle. It's the same with the refrigerator, all the white goods and brown goods, right? In an old society, you don't do it, right? You either buy no car and use public transport, or you buy a sports car and that car, you drive till you're dead, right? So it's quite interesting. Aging society. There was a decree in the country nine years ago. My friends who come from Hong Kong, who come from Taipei, who come from Shanghai, they land in Narita, they land in Haneda, right? And they complain, God, the public walkways, the electric walkways, they're so slow. In Hong Kong, everything's so fast, right? It's like, well, no. Nine years ago, there was a public decree to cut the speed of all public walkways by 20%. And it's correct public policy, because if your average age is now one in four, is over 70, these things become dangerous machines. Therefore, you should have a slower speed. Now, by the way, for you Americans, you guys don't have that problem, because your public walkways never work, right? Anyway, you get the point, right? Final point on this, because it's a fun topic, right? Because you deal with this all the time. Oh my god, oh my god, Japan, Japan. Japan now sells more adult diapers than baby diapers. Terrible. It's like, no. You go and visit Unicharm, which is the leading diaper company. And you say, hey, how are things going? So fantastic. But what about those baby diapers? It's like baby diapers. The profit margin on an adult diapers is three times as high as it is for a baby diaper. Because with a baby diaper, excuse me, you don't give a shit. With an adult diaper, trust me, I deserve the premium model. Sorry, I mean, just, you know, look, it's a market. It's a reality. This thing is not India. This thing is not Vietnam. This thing is an old society. But it's very rich, which we talk about. There is a lot of purchasing power here, right? Yes, it's not a high gross. Yes, you do need to invest in adult diapers, rather than in baby diapers, or maybe dog diapers, which is one of the companies I'm investing in. But it's interesting. You've got demographics there. Now the key point I want you to take away is that far from being an obstacle, Japan's demography is actually a tremendous tailwind. Let me explain. You heard about this, right? That, oh my god, in Japan, 40% of all employees are now part-time employees or contract employees. They're not full-time employees. And this is very true. Now 1995 was a year of utter crisis for this country. Anybody remember? Anybody born before? Sorry. No, 1995, what happened? In January, we had the Kobe earthquake. The Kobe earthquake, Kobe at the time was the third largest container port in the world, taken out. Terrible destruction. Then in March 1995, what did we have? Anybody? Toy sensei. We had the Om gas sarin attack, where a Japanese group, a Japanese cult, tried to poison the Japanese elite bureaucracy. They targeted Kasumi Gaseki, that train stop, on the Hibiya line. It's quite interesting. So you had an internal attack against the elite. Earthquake, internal attack. And then in 1995, in the summer, we had a banking crisis that will run on banks in this country. And so as a result of that, the Japanese government, the Japanese elite, actually did radical change. They organized, number one, the administrative reform that I talked about going from 22 to 13 major bureaucracies. More importantly, they implemented labor market reform, where the entire labor market was deregulated, so that every industry, you could now hire part-time employees or contract employees. It was the death of lifetime employment. It was the death of the salaryman. And as a result of that, you see that the only growth in employment were part-time people. Now, anybody here who works in admin? HR. You work in admin? Very shyly. Administrators are very important. But look, what's the difference between a full-time and a part-time employee in Japan? Anybody? What? So you're right. There are these benefit things. But OK, remember, Hart knows finance guy. Three big differences. The first one, money. All right? The big difference is a part-time or contract employee does not get the corporate bonus. A Japanese company pays a corporate bonus one in the summer and one in the winter. It has some correlation to profitability of the firm. But basically, you get this thing. And on average, across industries, it makes up about 30% of your annual disposable income. So if I am a part-time employee and you're a full-time employee, your purchasing power, your disposable income is basically 30% higher, right? Second difference. Anybody? Remember, we're talking about money. Oh, minna hazokashi, no. Japanese banks are nasty. Even nastier than American banks, right? If you are a part-time or contract employee, love or money does not buy you credit. You can barely get a credit card. And you can certainly not get a mortgage. It's very, very important, right? So my income level is lower. Obviously, my job stability is much lower, right? And I have no access to leverage. So this is where the lost generation, as it were, or where this stagnation in disposable incomes actually came from, right? That you had this change in the labor market conditions that actually came through. Now what is happening is that we're at this inflection point. And it is precisely because the population is declining. Precisely because the number of high school and university graduates is dropping every year by about 20, 25,000 kids that now there is a scarcity. There's a shortage of skill. There's a war for talent. And you see, even during the COVID years, right? You now see that full-time employment, which had been falling for over 30 years, for almost 20 years, right? Now full-time employment is actually growing. And you've got leading companies. You've got Toyota. You've got Hitachi. You've got the Misoho Bank re-hiring part-time employees on a full-time basis. And this is great because my purchasing power goes up by 30%, plus I get access to leverage. So that has been my thesis. If you're really bored one day, I think 11 years ago, I gave a TED talk. The first line was, I want to be reborn as a 23-year-old Japanese, right? And they all thought, oh my god, this is a middle-aged crisis of some, you know, no. And it looked like it looked idiotic, but it's just demand and supply, right? I mean, you know, when you are in a shortage relative to demand, the tables turn. And now the young generation actually does have price power. And you can see this in the number data. To verify my thesis, I have looked very, very carefully and continue to look very carefully at mortgage data. Because if I'm right, and there's a new cohort of Japanese who are in their 20s who now get higher incomes, better contracts, access to credit, then fine, you should start to see an improvement in real estate prices. And that's exactly what's been happening. Not just in Tokyo, not just in Okinawa, but increasingly even in the regions of the Japanese economy. That's very, very important. And mark my words, I believe that Japan will be the only G7 economy where we will see the rise of a new middle class, exactly because young Japanese are in short supply. Another way of looking at this, if you look at where we are today, this is the average apartment in Tokyo, which is about 70 square meters. You do see that you're now back up to where you were at the bubble peak. So the question is then, oh, is this a bubble? Well, on that absolute data, we're back at the bubble peak. But that's the wrong way of looking at it, in my opinion. You need to look at affordability. And if you do that, you actually find that if I now do take out a mortgage on the average terms that the mortgages are offered, you actually do find that affordability is still very, very good, which, by the way, for those of you who are interested in finance, is one reason for why the Bank of Japan will not be in a hurry to increase interest rates. Because you can show, if I increase mortgage rates by 1 percentage points, wages, incomes would have to rise by 14% to keep affordability the same. That's a big constraint that you actually have in the Japanese system. This just shows you that, relatively speaking, Japan is so-and-so. You see, this is the guy who pretends to be the prime minister. And this is the guy who pretends to be the governor of the Bank of Japan. He was actually my professor. And anyway, they have this nice consensus to let the bubble keep bubbling for the time being there. Now, you get the point on the consumer. Now, little look at companies. And I'm sorry, speaking my own book here, I invest in companies. I don't invest in countries. And what has changed in companies? First of all, what I look at very carefully when I make an investment is I look at ownership. Who actually owns this thing? And you see that cross-share holdings. What is that? Mochi-I. Anybody? So this is the big Japanese groups. They used to be called the Zaibatsu during the Pacific War. And then there were the Kei-Detsu. So this is the Mitsubishi group. This is the Sumitomo group. This is the Mitsui group. And their cross-share holdings, owning shares in each other, the steel company, the bank, the trading company, the electronics company, used to own half of the Japanese equity. So this was an insider's club. Now, it's basically open. And by the way, the Gaijin, sorry, the devil, sorry, the foreigners, sorry, global capital, owns about a third of the thing. By the way, anybody here from Korea? I was going to ask, what other country has cross-share holdings? Korea, right? And they're actually still family structures. If you look at the Samsung group, if you look at the Hyundai groups, right? Germany had very high cross-share holdings. But Chancellor Schroeder gave tax incentives to unwind that, right? So it was quite interesting. But Japan, the point being for ownership, Japan was a closed system. If you were not part of the Mitsubishi group, if you were not part of the Mitsui group, you didn't have access to proper accounts, to corporate strategy, et cetera. Now, you actually do. It's become an open system. And then the second thing here, you look, obviously, to make an investment, who owns the company? And by the way, recently, I mean, if Warren Buffett buys Japanese trading companies, as an investor, you should at least study them, because he's no fool, right? And so if he becomes an owner, and by the way, he owns about 11% of the trading companies now, right? This obviously makes a difference. Who owns the thing I'm buying, right? The second thing is performance, right? And you see, if you look at EPS, that's earnings per share, that's basically profits. We talk about it a little later. And then ROE, return on equities, basically capital efficiency, right, from a shareholders' perspective. And you see that Japan had very low return on equity. And now it's about 8.5%, my American friends. How many of you guys actually invest in stocks? OK, sensei. What's the ROE of America? God, you just invest because your friend gives you a tip. Oh, one of these, meme stocks. That's your thing, I see. No, no, but look, return on equity in America is about double, right? It's about 15%, 16%, right? If you look at the distribution of the return on equity, so capital efficiency, low to high, Japan has this incredibly boring bell curve, right? Centered around 8%, 8.5%, right? America is terrible unless you get to Michael Jordan. I mean, America is superstars, right? The magnificent seven, the government, there's always, you can always come up with wonderful names for the whole thing, right? So it's quite interesting, right? So Japan, actually, if you take out, if you adjust for this, right? Japan is actually way better than the average American company, so to speak, right? But Japan doesn't have any superstars. Why does Japan not have superstars? What? Taxation, you say, OK. Anybody else? It's wonderful, right? People come up with wonderful explanations. It's great, great dinner conversation. Oh, the Japanese are not greedy. They look out for them in all this anthropologic, sorry. Hi, anyway, I'm an economist, I should be careful. This is the reason. If you look at the industrial structure of the top four firms in the different industries, from hairdresser to steel company to semiconductor company, you name it, in the United States of America, the top four firms control about one third of all revenues. That's called an oligopoly for all intents and purposes, right? In Japan, in contrast, this thing is red ocean, hyper competitive. In the average industry, the average guy, the average top four barely control 12% of all the revenues. You've got hyper competition. You and I setting up a company is nice. But you know what? Within three months, somebody will copy us and basically enter the market as well, which is very, very interesting, right? That you've got this element. And that's, of course, if I've got so much competition, I don't have price power, right? And that's a big difference that you actually have here. You can look at it the other way. This is listed companies. Look, this is the size of GDP and the market capitalization. The equity market is about seven times bigger in the United States. But the number of companies is basically about the same. So the pie that you're competing in is much, much more difficult here. The point I'm trying to make is America has these superstar CEOs, right? Look at Japan. This is the top line. This is your revenues. And revenues in Japan have been stagnant for one generation, for 30 years. Have you ever run a company if revenues are flat? Maybe for one or two quarters, you can raise profits, right? Because you cut costs. But over 30 years, I mean, these guys deserve the Nobel Prize for Applied Economics, right? Profits are up, right? Look at the data. If you compare it to the superstar CEO in America, Japan profits up 11 times, America 3 versus 6. It's quite interesting. Whoops. Who gets the money? It's quite interesting, right? I mean, the Japanese are not greedy, or the way the compensation system is set up, right? I mean, there's a reason for my Mr. Otani place in the US rather than in Japan. But it's quite interesting, right? I mean, therefore good, therefore bad. Again, be my guest, right? But I'm just trying to point out from a systemic perspective, never, ever be fooled by a Japanese salaryman CEO. These guys are exceptional operational managers, right? Some specifics for those of you who are interested in economics, right, and investing. This is sales. This is since data started, basically, in the Tokyo Olympics happened in 1964, right? You see the top line grows. Sales, you know, there was all this growth. And then it basically flatlined. Employees, so how much do the workers get, right? During the bubble, they got a little bit more, and then they now get a little bit less. You know, be my guest, right? But the interesting thing is that people always say, oh, the Japanese don't pay their shareholders. Well, that's actually not true. If you look at dividends and share buybacks, they actually do get the line share, which is quite interesting, right? The problem is that in Japan is that retained earnings. So what is that? That's when you and I make money, and we don't think we need to raise the dividend. We don't think we need to buy another company. We don't think we need to pay our employees. We don't think we make more capital investment. That goes on the balance sheet as sleeping cash. And this is where Japan excels, right? This is my favorite chart. This is retained earnings or cash on balance sheet. I've divided it international income into GDP so you can compare it. And you see that everywhere in the world, Japan, France, China, UK, Korea, everywhere cash on balance sheet has gone up. Anybody, why? After the global financial crisis, companies don't trust their bankers. During the global financial crisis, IBM was canceled an overnight trade credit from one of the major American banks. Said, oh, this is too risky for us. Overnight, you're IBM. Anyway, so as a result, you've got this cash cushion. And anybody who runs a company, you need a cash cushion. It's just like your own household, right? You need a cash cushion. But do you need to have grown this from 30% of GDP to 130% of GDP? I once showed this chart to God bless him, Prime Minister Abe. And he was frothing at the mouse. He was, let's tax them! It was interesting, right? I mean, again, this is money that accumulates basically at zero interest rates. And this is the list of companies that are supposed to be the greedy guys who are supposed to maximize profits. So obviously, your textbook finance doesn't quite seem to work. Sorry, can I make an advertisement for the country that plays the worst football in the world right now? Germany. It was quite interesting, right? Germany's the only country where there isn't an increase in retained earnings. Why is that? Because Germany is the only country in the world that has a different model of corporate governance. When people talk about corporate governments, they talk about, oh, we need more outside directors. Oh, we need more foreigners. Oh, we need more women on the board. Maybe, maybe not. I do not know. In Germany, labor, by law, the labor unions are 50% of the board. So if you and I run a company, we make money. We don't think we need to buy another company. We don't think we need to make any investments. We don't think we need to raise the dividend. Hi, therefore it goes to us. And again, I'm not a socialist, but there's a reason for why Germany has one of the highest productivities in the world here. So it's interesting. Productivity. This is fun. I always joke. When I was working for the politician, I learned a very good Japanese lesson. So you do fundraising. You're a politician. You have to hang out with all these people. And when you don't like somebody, or when you don't think somebody is particularly interesting, what do you do? You go to Karaoke. It's fantastic, because you can be together. You can have a good time, or you don't have to talk, which is great. Sorry, why do I say that? You often hear economists or newspaper people talk about, oh, we need to raise productivity. Yeah, I know. I know I need to raise productivity, but that's not interesting. How are you going to do that? What is interesting, when you look at Japanese productivity, you see the tradeable goods sectors, the industrial, the manufacturing sector, basically doing a good job. But you see the non-manufacturing sector, the service sector, basically flatlining. Why? One reason is the fact that labor was kept too low by this change in the labor market reform. The other reason is that Japanese companies never invested in new capital. Industrial companies run the most advanced robotic systems in the world. The service sector companies did not. This underinvestment is a big issue. And I think for your innovation, for your engagement with Japan, contributing to the service sector with some of your innovations, I think is going to be a big thing. How many remember this? Thomas put you on the, you don't. Come on, this was the Tokyo Olympics recently. This is Tokyo. This is the stadium. This was the closing ceremony. And what do they do for the first time on the global stage? We have a drone fireworks. And the drones do their firework thing. And then at the end, they turn into the globe. Everybody holds hands and sings kumbaya. And aren't we all a nice, happy, united human race. So Japan is cool. Very cool. 10 days later, this is Shanghai. In Shanghai, they do the same drone thing. And instead of singing kumbaya, they end by putting up this QR code. If you take a picture of that with your mobile phone, you get a free video game. That's being commercial and cool. Japan is very cool, but it's not commercial. And that's again something where it gets very interesting. Finally, for the last five minutes, you hear a lot of economists and commentators talk about megatrends, right? What's a megatrend? O-A-I is a megatrend. It's like, no, it's not. I mean, yes, it is. It's just the next evolution in software or in computer engineering, right? But it affects everybody. Whether you're a German company, whether you're a French company, whether you're an Indian company, whether you're a Japanese company, you have to deal with technological progress, right? Technological progress is very fungible, right? My engineers are better than yours. Really? For how long? Three months? I mean, come on, right? So what I want to ingrain upon you at the end, the four domestic megatrends that are happening. The first one is, yes, demographics as a catalyst for positive change. This thing, Japan, has 3.6 million companies. Of these, where the majority owner and CEO is over 70, it's now 2.4 million. No successor, 1.3 million. So what does that mean? We now get industrial consolidation. We are now in the fourth year of a record boom in mergers and acquisitions, right? This is very, very exciting. Why is this happening is because the owner is now old and there's no successor, right? And that's when you start to sell. You and I have been competitors in our little bus business in Fukuoka for all our life. You wouldn't think about merging with me because you hate me. Now, you all of a sudden love me because you hope that I'm going to buy your company. But it's quite interesting, right? You've got this thing going on. It's empirical. So this red ocean that I talked about, right? The top four companies only controlling about 12% of the market share. This will now be solved by demographics leading to industrial consolidation. Second, Mick Jagger in Japan is unbelievably rich. This is the richest baby boom generation on Earth, right? Now what will happen is that, huh, it was Charlie Watts who had to go first. You guys don't even know the Rolling Stones, OK? Good. Thank you. Thank you. But over the next 10 years, the baby boomers will start to die. And you can show that over the next decade, the equivalent of 1.3 times GDP is going to be unlocked because of death. Now, there's inheritance tax. Some of the money is going to be taken away. But this purchasing power of the younger generation, because of death, right? Sorry, it's a terrible thing to say, right? Particularly for me. I'm older than you. But you're French. Sorry, we go back a long time. Anyway, you get the point. People will underestimate the purchasing power of Mr. and Mrs. Watanabe of the domestic market because there is money that is not earned but inherited. This is a very, very big issue that is going on. The third driver is that, as you all know very well here at OIST, we are now all too cheap. We are very cheap. A friend of mine last year started a business. He found out that software engineers in Tokyo are now one third of the price of a software engineer in Silicon Valley. And they are 30% cheaper than a software engineer in Hanoi. Are they better? Are they worse? Come on. They're perfectly fine software engineers. It's got to tell them what to do. And he set up a company that provides the legal and mid office services to provide contract to Japanese software engineers to engage with global companies. He does all the Mendoc Si work. And he's now got 2,500 software engineers happily working here in Japan because they're actually cheap. And then the final point mark my words. This thing will become an immigration superpower. I mean, this is just data. With immigration, people get very emotional very quickly. And quite frankly, there is no model in the world where the immigration model actually is successful. There's frictions everywhere. Look at the data. Before COVID, there were basically about 170,000 people starting to work in Japan. Now, last year, this is the first half annualized. So there's some pent up recovery, I get that. But basically, it's annualizing at about 350,000. When I showed up in 1985, how many non-Japanese living here? 500,000. Today, 3.2 million. And it's growing at 300,000. The visas are being deregulated, et cetera, et cetera. Last year, my favorite moment. What's your favorite convenience store? Yes. No, no, but, right? So Seven and I, last year, a friend of mine whispers into my ear that, oh, did you know? No. Did you know that last year in April, 7, 7-Eleven, sold its first franchise to a non-Japanese? A woman from Nepal who showed up 11 years ago as a Momoshio scholar, right? She started working. And 10 years ago, if you were a non-Japanese working in a convenience store, trust me, you got discriminated. There's no question about the whole thing. But now, she owns the franchise. So I call my friend who is on the board and say, hey, I want to meet. I want to talk to these people, right? I say, yeah, yeah, OK, ta-da. So he introduces me to the guy and say, oh, of course. Yeah, yeah. We've got this project. This project is called Gateway Japan, OK? Talk to me. We had employed some mathematicians and sort of said, look, today we've got 13% of our workforce is non-Japanese. And our primary cohort is Japanese students, right? Now, given the demographics, we want to stay the number one convenience store company in Japan, right? By 2030, how many foreigners do we need? Even with more robotics at the checkout center, et cetera, et cetera, the answer is 50%. So the board just said, OK, let's start Project Gateway to Japan. We are now openly not just encouraging foreigners to work at a 7-Eleven, but we're going to give you free education on Japanese accounting, on Japanese taxation, on Japanese business rules. And after four years, if you want to buy the franchise, we will give you a loan. It's totally pragmatic, right? So this is definitely happening here in Japan. And I think people completely underestimate how strong immigration in Japan is. The big change and the big, big obstacle is that your large corporate sector still basically renumerates people on the basis of seniority, right? Do we have time for an anecdote? So it was at JPMorgan. I was the head of research, right? So there's like, yeah, we were 1,000 people at the company with this management meeting. And the guy, the boss, some American guy, said, oh, we've got a problem in tax accounting, right? OK, we've got a problem in tax accounting. Yes, we do have a problem in tax accounting. So then the next week before the next management meeting, he goes around to all of the heads, the head of equity, the head of fixed income, and said, hey, when you've got a problem with tax accounting, what do you do? Ishi-san, Ishi-san gets it done. OK, goes to the equity's guy. What do you do? Oh, Ishi-san. I don't even have to ask. He delivers, right? OK, next management meeting, right? All of us sitting around there, the guy says, hey, I've spoken to all of you, as you know, and you all tell me Ishi-san. So let's promote Ishi-san to become the head of tax accounting. All of these guys go, can't do that. Because there's Watanabe, who is three years his senior. So I raised my hand and said, let's fire both of them. No, but I mean, sorry, you get the point. Seniority matters, which is one of the nice things about Japan, particularly the older I get, right? But the reality is, why is there lack of labor mobility? Why is there a problem for women to move back into corporations after giving birth? Yes, it's childcare this, that, or the other. But the big obstacle is the fact that you are basically compensated on the basis of seniority. If you're an engineer at Hitachi, the only reason you leave to go to Fujitsu is because the guy who is your boss doesn't like you anymore. It's not because you're actually better than the boss. And if you move to Fujitsu, Fujitsu will say, hey, this guy, KO engineering, eight years on the job, here's his payslot. It's quite interesting. So there's actually no positive incentive for anybody to move. And the exciting thing is that you've now got a dinosaur, Japan's most unionized company, which is NTT. NTT, since April last year, has a new president. This president, since last year, implemented pay for performance. And you can actually now at NTT, I mean, we'll see how it plays out, but you will actually see younger people being the boss of older people. And again, this is where it gets interesting. This next generation elite on the move, this is a generation that is ambitious. This is a generation that recognizes it is empowered. The tables have churned. And as a result of that, you will find extra productivity growth. Final three minutes, I promise, Mr. Kishida, challenges. One is a big global one. This is Japan. If I look at listed companies, basically now 62% of the profits come from the rest of the world. Toyota hasn't made money selling a car in Japan for 13 years, because there's so much competition. There's not a lot of demand either. When you look at the regional distribution, it used to be all about America. This, obviously, over the last 20 years has changed, with China and Asia having become more important. Why is this a policy challenge is because America now plays hardball. There's a new Cold War. Anyway, you get the point. For a Japanese corporation having to pick between America or China, it's just not an option, because I need both. There's no question that I need both. So that's a policy challenge. The big economic policy challenge is the fact that, yes, do you have zombies in Okinawa? You've got lots of zombies in Okinawa. What is this? 12% of Japanese companies cannot pay their interest expense out of current profits. And that's with interest rates being basically zero zombie companies. Why is the market so cluttered? It's because in Japan, bankruptcy was not allowed. This is one of my favorite charts. 1960s, high growth period. When Japan was the superstar of the world, 8%, 9%, 10% grows, you had bankruptcies rising. Then you had the bubble, incredibly good time, so bankruptcies fall. Shortly afterwards, in the 1990s, the bubble collapsed. Bankruptcies rose again. But then, basically in the year 2000, your friends from the LDP, the ruling party, issued a moratorium. There will be no more bankruptcies. And as a result of that, all these government support programs were put into place. About 70% of all corporate loans outstanding are guaranteed by you and me, the Japanese taxpayer. It's quite interesting. So the interesting thing in terms of a policy challenge, remember, I've got excessive competition. I've got all this red ocean. Yes, there is mergers and acquisitions. But also, I need the bad guys to actually go out of business. Because when they go out of business, that frees up land. That frees up some people. It's painful, I get that. But that's how you get economic growth. And that's going to be a big policy challenge going forward. Finally, as an economist, I'm always asked, where does growth come from? And it's not population, but it is entrepreneurship. And you can show, if you look at the share of entrepreneurs in your population cohorts, the higher the number of entrepreneurs, the greater your potential growth rate. The purple thing was Israel. There's obviously a disaster now. America, very, very entrepreneurial. Absolutely no question about it. Japan, you can learn a great Japanese word, is chūtohampa. Japan is neither here nor there. And of course, Germany is better than France, but that's it. Anyway, final point. My mentor, when I turned the Japan optimist in 1999, 2000, my mentor says, yes, you're right. And this Japan was in depression. I said, yes, you're right. You should be optimistic. This is good. But you need to reconsider if and when Japan increases defense spending. This is the most important consumer product over the last 30 years, mobile phone. Of the entire value chain, how much is Apple? 3%. 97% is the American military innovation complex. I don't need to tell you this. The internet wasn't a bunch of nice guys at Stanford trying to talk to their friends at Berkeley. It was DARPA and the American military scaling this thing up. Inventing something is easy for you and me. Scaling something up, that's what America does for a living. Why is this a potential worry? Because as you know, for reasons out of our control, it has been decided that defense spending in Japan will be doubled from 1% of GDP to 2% of GDP. From an economist's perspective, if all of that money is being used to put air conditioning in the barracks, do you know that as a Japanese self-defense force recruit and as a Japanese self-defense force officer, you have to bring your own toilet paper? I kid you not. So if the money is used on this sort of stuff, plus you're buying Patriot missiles from, thank you, America, that doesn't do anything to make Hitachi or Fujitsu a better company. So dealing with dual-use technology, dual-use investment is a complicated, complicated set of governance around this. And whether Japan can actually get this right is sort of a big question mark. So the one thing, I'm extremely optimistic, I think for my world, as an investor, there's a lot of money to be made as this industrial organization, reorganization happens, as the merger boom continues, as the younger generation of leaders takes control. But there is a potential worry that indeed, if you have to start to invest in guns rather than butter to use this old adage, that's a potential issue there. And of course, in policy as well as in morality, the great secret is not to constrain the action but to awaken the inclinations of mankind. This is my favorite economist who is a Frenchman. So there you go. Not only do you play very good football, but you also have very good economists. Anyway, if you thought this was marginally interesting, don't be shy. This is my little sub-stack here. And thank you very much. Thank you very much. Thank you very much for the talk. It was very, very interesting. You mentioned two major points that will lead to my question. The first one being, you mentioned that there is this decrease of labor force in Japan leading to a more of an employees market rather than an employers market. But you also mentioned that there is this mass immigration at the same time, which I think could lead to more employers market rather than an employees market. So my very selfish question for my personal interest is what do you think is gonna happen in the next few years? Are we gonna be in an employers market or an employees market? So the answer is you will be in an employers market, right? Sorry, in an employees market, right? You have the power, right? I'm the loser, right? And again, the reason is very straightforward, right? If you talk to Elon Musk, his problem is not technology. His problem is the team. How do I motivate the team, right? How do I incentivize the team? How do I create loyalty in the team, right? How do I create the proper incentives for them to stay and be more productive? And how do I put a system of governments where I can actually get rid of the under performers in a fair way, you would hope, right? And this is exactly where Japan is now changing right now. As I come back to this point, the single biggest obstacle, right? Is the reality of pay for performance absolutely necessary? I would give you an example five years ago, a friend of mine called me and said, hey, Jesper, remember Hiroshi. Hiroshi is my son, right? Oh yeah, I remember Hiroshi, how's he doing? Oh, he said MIT. And he's just about to finish engineering at MIT. And he got a job offer from Apple, from Siemens, and from Canon. Now you've met Hiroshi a couple of times, what's your advice? I said, Ito-san, what do you want me to tell him? If he joins Apple and he's good and lucky, in 15 years he can run the company. This is why we love America. If you're good and lucky, you can go really far, very fast, right? If he joins Siemens, a European company, if he's good and lucky in 15 years, he can be in charge of a region, Latin America, Asia, Europe, right? If he joins Canon and he's good and lucky in 15 years, what's it gonna be? Kacho? I mean, the A team doesn't want to play for Japan. The Japanese own A team doesn't want to play for Japan, because I don't know whether you like baseball. I mean, I'm German, I think it's a game of chance, but the guy's very good. Otani is very good. And they keep on all the guys who are very good at Koshien, the high school baseball team, they all go to the United States. They don't wanna play in the Japanese League. So this change in the evaluation system, right? It doesn't mean that you have to become an arrogant SOB, right? But if you've got proper governance about incentivizing and also monetarily compensating, I did some research last year with the K-10RAN, with the big business organization, right? When I discovered this thing about the elite bureaucrats, right? And I found that if you were Japanese and you joined a Japanese top 50 company in the 1960s, it took you 13 years to become butchers, to become general manager. Today, if you join a top Japanese company, it takes you on average 24 years to become general managers. The younger generation, sure you guys want money, that's fine, right? But more important than money is the motivation. You want to do something that is meaningful. I don't want to do copying or photocopying, right? At the Ministry of Finance while I'm 27, which is what these guys do. Anyway, so that's where it gets interesting. And I think, just, I'm a firm believer. I think policy is overrated. Policy really doesn't matter. It matters for me in my day job when I make investments, right? But structurally for an economy, what matters is number one, your resource endowment, right? And number two, when are there scarcities? When there's abundance, everything is easy. It's very easy. When the oil price is high, it's very easy for the Middle East to be on top of the world. When the oil price is at 20 bucks, now it gets interesting because there's a scarcity. And this is what's happening in Japan, right? Japan is very focused on human capital. Human capital is dying out. One in four is over 70. What are these guys gonna do? I mean, sorry, you know, I mean, we're losing here. That's what we do. Thank God we've got money. We can come and travel to Okinawa. We can come and travel to Okinawa with our grandchildren, great. But I'm not gonna invent the next breakthrough technology for Sony Corporation. That's where you come in, and you can make that pitch. So I think you guys are in a phenomenal position, right? Because you will actually be able to understand parts of the good parts of Japan and the parts that are not so good. Like I said, we do a great drone thing. The Japanese are unbelievably creative. Can they sell? It's hilarious. It's absolutely hilarious. And that's where you have an enormous opportunity because of your scientific skill, because you're global, and because of your generally global perspective. Very, very important. So stay here and become the head of Sony. What are you studying? Don't tell me you're studying chemistry. Neuroscience. The what? Neuroscience. What? Neuroscience. Sony, there you go. Sony, yes. Any other questions? Sorry. I have a couple. Ha. If you were 23 in Japan, what's the first thing you'd do? If I am 23. Hey. It's very interesting. I actually would want to set up a startup, right? And I think that the arbitrage opportunity, right, in terms of promoting disruptive technology into Japan actually works very, very well, right? If that's an answer, right? Would you do that in Tokyo or would you do that in Okinawa? Would you do something in Okinawa? Are you going to forgive me? Ha. So I would tell you, sorry, this is... Okay, I'm... No, I mean, look, I tell you my person's sorry, right? So I show up in the first three months we're at Mitsui Busan, right, at the Japanese trading company. And I was supposed to go back, right? And I was pretending to do this PhD comparing something, something financial policy in Germany, something, something financial policy in the United States, right? And Japan looked interesting. I was 24, I liked the people I was with, right? And so I approached the guy I was doing the PhD for, or pretending to do the PhD for, you know? And I sort of said, hey, you know, Japan could be interesting. I said, and he knew something about Japan. And he said, yes, great, you're 24, you can still learn the language. But for the first year, sorry, he was an old American guy, get the hell out of Tokyo because you will spend the rest of your life in Tokyo, right? And, you know, again, whether you're in design, whether you're in finance, whether you're in politics, whether you're in movies, I mean, the cluster of Tokyo, right? It's just so enormous, right? That it's very, very difficult to escape that. There's obvious clusters, you know, around Osaka Kyoto, very, very innovative, right? You know, obviously Fukuoka, but you very quickly run out of space, right? In terms of your market share. And this is what's interesting because in my family office, right? We get a lot of pitches from people, you know, pitching, you know, why don't you become an angel investor in our company, et cetera, et cetera. And it's hilarious because, you know, Americans are just, which is why we love them, right? Americans immediately want to conquer the world. Here's my innovation. I'm gonna become the next global standard, right? This is their pitch. And they got this scale that is just there. The Japanese guys, the way they pitch, oh, I want to be the king of Shibuya. You know, which is like a little district in Tokyo. It's like, you know, again, in terms of boys be ambitious, right? It's quite interesting because at the end of the day, as an investor, and remember, money is fungible, right? I can go anywhere in the world. Now, of course, if your terminal growth rate, you don't need to be a finance genius for that. If your terminal growth rate is pick a number, 2%, versus the terminal growth rate, right? For somebody who goes global, right? Or focuses on Asia Pacific, where the terminal growth rate is six, seven, 8%. I mean, as an investor, what do you want me to do? I mean, I can support this guy, but it becomes kind of like a social project. Sorry, you get the point, right? Hi, please. Could you comment on the regulatory frameworks in Japan with the bureaucracy that sometimes stifles innovation, or stifles, and how to get finance for startups in Japan? Totally disagree. If you're an entrepreneur, and you feel stifled by the bureaucracy, you're not an entrepreneur. I'm sorry, your job as an entrepreneur is to be disruptive. No is not an answer, right? I'm fully aware that if I apply for grants and all of this wonderful stuff, that obviously I'm beholden to the bureaucracy, right? My advice to anybody is, never, ever take money from the government. No, but I'm sorry, I'm not being facetious. This idea that rules and regulations are a big obstacle. That's all we do. No. You must be working at OIST. No, no, but look in all seriousness, I mean, let me give you just a couple of examples, right? When you look at wealth, right? These people who are the billionaires in Japan, right? Japan is the country where the fluidity of the top 10 people is the highest in the G7. In other words, you've got constantly new entrants. In America, it's always the same five guys, right? Just to give an example, women, the first ever and still the only self-made female billionaire is a Japanese woman, Namba-san from DNA, right? Oh, there's obstacles, here there's obstacles, should there's obstacles? It's called life. You understand what I'm saying? Of course, I understand and I'm on a couple of government advisory committees. You can make things easier. It's like the debate about the hanko. Sorry, I'm digressing, but you love this idea. Is the hanko a bad idea? The hanko is brilliant. The hanko is docu-sign 100 years ago. When my wife's away and we need to get something done, I can take her hanko and do this. I mean, this is awesome, try doing this in America, impossible, right? What is the problem with the Japanese hanko? The problem with the Japanese hanko is not the hanko. The problem with the Japanese hanko is that when you get the document and you put the hanko on and it touches the line, they return the paper. That's called process. That's not hanko. So do you understand what I'm saying? There is an enormous, and this I very much agree with you, the Japanese are pedantic. I mean, have any of you come back to Japan lately? Have you done the electronic zekan? I mean, how can you make this so complicated? How is this so complicated? You know, like seriously, Singapore, again, using technology, right, to actually smooth process. One of the companies I invested in was called Peydi, right? And their CEO had a wonderful thing and his wonderful number one slogan was, no mendokusai. Japan is the king of mendokusai. But that's not the bureaucracy. Sorry, let me, for 30 seconds because there's a lot of misconceptions. Oh, the tax system. Really? What about the tax system? I pay, I'm sorry, I pay the same amount of tax that I would if I were living in New York City. I pay less tax than if I were living in Los Angeles. There's small percentage points, but I mean, the tax system is a problem. Where's the tax system of Rome? It's not a problem. The tax system is something that you get a tax accountant for. It's doable, perfectly doable. Do you understand what I'm saying? Right? You know, now, again, it's a previously difficult market. Right? Kishida, sorry, I'm bragging now. When they did this whole, now they finally embrace startup nation Japan and all that stuff in Japan, right? And so two years ago, you know, they called me and said, oh, you know, you've written on startup nation Japan. And so what can we do to make Japan, you know, a startup nation? So my first word was, since I'm an arrogant German, right, I said, get out of the way. Right? Okay, that's not very polite, right? But the second thing is, think about this. Where are you from? Mexico. Oh, wow. Mexico is crazy. These are the longest business luncheons in the world. I always hate going to Mexico because, no, seriously, the lunch starts at one and ends at 755. And then you say, what are you doing? Are you trading because of New York hours or something? I go, no, no, no, no. My wife needs to have me home at quarter past eight. It's like, wow, this is a meritocracy if I ever saw one. Fictacular. But the point I was going, you know, the point I was going to make, right, is, what's the point I was going to make? No, but look, you know, again, kombucha. Anybody know kombucha? Okay, when I was growing up, and I'm sorry, I'm showing my age, there was no kombucha. Where did kombucha come from? So I haven't researched this, but I'm going to make it up. It sounds like a good story, right? You've got a bunch of hippies, right? And they run out of money. And then, you know, there's like a, you know, some Korean orange girl, right, with a guy, and they figure it out and said, oh, let's do kombucha, right? And the guy's like, oh, this is cool, you know, and said, fine. And so they figure out a way, okay, I can do 8,000 bottles. In America, what do you do? You get in a gray ombus, you go to the Whole Foods, and you say, hey, look at this. We've done this, kombucha. It's really cool. It'll be the next big thing. And by the way, we can do 8,000 bottles a month. And the manager will look at you, and maybe he'll like you. And maybe one of the other drinks supplier is sort of falling a little bit behind. So he wants to hold that guy's feet a little bit to the fire. So he will look you in the eye and say, hey, I give you a shot. You get on the shelf. Not eight, 10,000 bottles for three months. And I will look at every bottle of that. Get out of here and get, start going. He will give me a shot. In Japan, if I invent something, and I go to, sorry, Santori, right? And say, hey, I've got kombucha. I can do 8,000 bottles. They will taste you, mmm, wishy-dous, man. And they will do all sorts of stuff, right? And then they will say, thank you very much, right? And then I will walk out, and they will pick up the phone to the research department and say, hey, have you heard about kombucha? How about it? Sorry, I'm being a little bit facetious, right? But the problem that you have in Japan for commercializing a business, for getting scale in the business, the distribution system here is previously oligopolized, right? And getting on the shelf is very difficult. So the successful startup businesses in Japan are dominated, if they are B2C, right? Are dominated by actually having internet-based distribution. Because that way, obviously, now I've got a platform where I can reach the customer directly. I don't need the distributor, right? To cut into the whole thing. Japan has 470,000 wholesalers. Of those 470,000, three quarters do not have a customer who is a consumer. In other words, three quarters of all wholesalers buy and sell from another wholesaler. Breaking into that system, that's your real challenge. It's not the bureaucracy. It's never the government. Make a pitch, right? We're open. We're open for business. So you talked about the benefits of different employment structures, and you said that the great thing for the younger people is that there's a switch from going from part-time employment to full-time and the benefits in the emerging middle class. And you also talked about how the lifetime employment, you get all these like dinosaurs and that's kind of not that great. I wonder if you could comment a little bit on OIST structure, because we have all of the admin and all of the students who are all part-time employees and all of the professors who are all tenure track. And I wonder how that, if OIST, I know OIST is a science thing and there's reasons we have this system, but from your economics perspective. No, and you make a very, very important point, right? And we should be having this discussion with the entire board here. I think that OIST is at a very, very interesting point. In the sense of that fine, for the last 10, 12 years, right? You were starting from nothing and you build all sorts of things up, right? And you run fast, right? You don't have to pay so much attention, right? Towards efficiencies, towards fairness, et cetera, et cetera, because the pie was growing very, very fast, right? The interesting thing now is that again, I'm just an economist, right? Now, the pie is not gonna grow. It's just a reality. So when the pie doesn't grow, right? Actually beginning to focus on how do I optimize? What do I want to optimize for, right? What are the resources that I need for that optimization and how do I incentivize those resources? Because the old incentive system, which was basically a candy store, right? Cannot work anymore. So some hard decisions, no doubt, will have to be made. And you're very right to ask that question, right? I don't have an answer, because again, that is an answer that effectively every piece and parcel of the organization, whether it's human resources, whether it is social services, whether it is the academic side, et cetera, et cetera. But what you must not do and what the board will fight for very, very strongly is that the number one focus has got to be the science because it is OIST mission. It is the order of the Japanese government which will always remain the primary sponsor of this project. The order is to be different, to be a catalyst for change for the Japanese universities, right? So the fact that you now have institutions, that you've got rent-seeking behavior, that you've got unfairness in the system just because of the legacy that has been built up, right? Yes, I realize what the Japanese government did going from 22 bureaucracies to 13 by maintaining the level of services is something that needs to be considered very, very hard. Sorry, am I speaking out of line? Good, I'm running for president. Please. Just had a quick question. Someone who's an American who has assets both in America and here, my main, you probably know what I'm gonna ask. What is the point, or what is behind the sudden devaluation of the yen? Okay, so it's very, very interesting and this is something you will appreciate as scientists, I hope, right? Is, you know, there is zero mystery in why the yen is weakening and the dollar is strengthening, right? It's the simplest economic model which is just interest rate differentials, right? And as you know, Japan is married to and committed to effectively holding interest rates at zero, right? And the United States of America went from zero to over 5%. So as a money guy, right? This is free money. It's called a carry trade. I can borrow at zero effectively, right? And I invest in 5% and all I need to make sure is that if and when the currency starts to have this volatility to manage that volatility, but I make 5% just clipping coupons. So it's just currency trading? Yeah, nobody, but it's not currency, of course it is currency trading in the sense of yes, it's blood, right? But why is the blood circulating at a faster speed, right? It's because of the interest rate differential. That's the key driver and trust me, I once lost, sorry, this is stupid, but I once lost two and a half billion dollars in six hours. We were massively long the dollar. This was in 1998, right? And all of a sudden, God bless him. Bob Rubin, the Treasury Secretary, stands in front of a CNN camera and says the strong dollar is no longer in the interest of America. That thing went from 147 to 111 in six hours. Trust me, if you're long options, Siler, I mean, it wasn't funny, right? But so you've got volatility, right? In the whole thing, yeah? When you remember, so one potential worry, and sorry, the point I was trying to make, when you try to get the currency right, all you need to listen to is German power, is the Federal Reserve. Japan doesn't matter. We're slowly running out of time, so there's a lot of questions, so maybe we can do a couple of short answers. Short answer, I can't do that, I'm German. There's the next microphone at the moment. There's a question there. So you raised gross as the fifth goal of the economy, but these days the sustainability is a very large concern. So what's your view about this growth and sustainability and how Japan is positioned in the need for the sustainable economy? It's very interesting. So the short answer is that Japan is doing all the right moves, right? But the speed timetable is just very, very much behind. For example, Japan is committed to introduce carbon pricing, right? By, what is it, 2038, right? By that time we'll all be dead. Sorry, Europe introduced it, right? And you can, however, MIT has this wonderful model on climate change and actually introducing carbon pricing, is in terms of the immediate impact that you have, it's actually very, very powerful, right? So the irony is that is an area where the government is making all the right moves, but it is making the right moves, right? And it's making the right moves without a true sense of urgency. Right? In hindsight, what would you have done differently? As a human being? What I would, no, I mean, it's, oh God, that's, you're gonna buy me a drink. You know what, you're gonna hate me for saying this, right? But I now think actually having studied law would have been a good thing, right? Because you, sorry, and this is terrible, I loathe lawyers, right? But you realize at the policy level, as well as at the corporate level, right? Actually having a more solid understanding on how the legal science, how the legal framework actually works is incredibly important, right? And you can do it learning by doing, but I wish at an earlier stage in my life, right? I would have spent six months, right? To do some, what do you guys do? Remote learning programs, right? On dealing with lawyers, because dating female lawyers just wasn't good enough. Any other questions? Okay, we have until quarter two, last question then. Last question. A more practical question this time, it is if I, because it's apparently very encouraging from your first answer, staying in Japan after PhD here, if I wanna invest in the stock market here, what are the resources I need to look for, or look towards? Look, look, look, stock investing, right? The nice thing is that the enemy of a retail investor is number one fees and number two fear, right? Because you're a human being. If you read in the newspaper, oh my God, it's down 10%, you're not gonna buy. It takes me 30 years of experience to actually have the balls, excuse me, to actually buy when it's down 10%, right? But the fee thing is very, very important. Sorry, can I be a little bit longer? Think of things, think of me, right? So I need to make a living, right? I make a living by attracting your money. And I need to make a living, and so I will charge a fee. So how high is that fee? So the fund that you should buy should be the lowest fee offering that is available, right? In the old days, right? It used to be that you had to pay 2% for the privilege of investing in my Fidelity fund or BlackRock fund, et cetera, et cetera. Today, because of democratization, because of technological progress, because of deregulation, you can buy an ETF. An ETF costs you about 30 basis points, 0.3%, buy the ETF as a retail investor. Don't buy the 2%. I can tell you a great story. I've got a great fund, you know what, we charge? We charge two in 20. So if the money goes up, of the profit that goes up, I get 20%, which is great, but don't invest in my fund. I mean, not you. You understand what I'm saying? So you wanna be just open an interactive, self-directed brokerage account. The governance around these is perfectly fine. Remember, this is the one country when nobody lost money when FTX went bankrupt. Even on crypto, Japan has proper rules and regulation, right? So it's quite interesting. So low fees, ETFs, and then you can, I mean, high dividend, right? The Japanese dividend yield is about 2.5%, right? If you buy a high dividend fund, like Warren Buffett buys the trading companies, they still have a dividend yield of 4%. If my cost is 0.3, and my dividend income is four, there's some slippage, and you gotta pay some taxes, et cetera, et cetera, but you're still good, you're making money before the thing actually goes up, right? So that's the cushion that you actually want to do. Just be simple. Don't be clever, because trust me, finance has a lot of clever people, but all we really want is your money. Capitalism, that works. Thank you very much. No, no, no, that was, no, no, this was, this was American capitalism. Thank you very much again, Jesper, for this insightful talk and your time plan for our discussion.