 And look at some of the changes in continuity in the Japanese economy and talk about the prospects with a particular focus on the element of what Prime Minister Abe has called the third arrow of his strategy, that is the growth strategy, and how Japan can move forward with structural reform that will create greater dynamism and growth, sustained growth in Japan. We also somewhat acutely added the fourth arrow, because some people talk about the Olympics as a fourth arrow, and the link in my mind is that these elements get to the issues of confidence in Japan's future. And so I think that's the theme that unites this. Let me just, before I introduce our panel, let me just say that the title of this event has sparked more feedback and comment than any title that I've had in an event before. We were originally going to call it When I'm 64, because we thought that the Beatles had first come to Japan in 1964. It turns out they didn't come until 1966, so that kind of ruined that. But we wanted to, but it's also evoked a lot of memories for people of a certain age. So I've had people, of course, 50-year-olds who tell me this was a significant year for them, of course. I've had movie fans telling me that, and musical fans telling me that Mary Poppins was beat out narrowly by my fair lady for Best Picture in 1964, and I've had baseball fans tell me that the St. Louis Cardinals beat the New York Yankees in a dramatic seven-game World Series. Well, Japan has baseball too, and they also had a seven-game World Japan Series in 1964. The Nankai Hawks beat the Hanshin Tigers in seven games. It was a very exciting series, apparently. And, of course, there are these events that have been highlighted that happened in 1964 that we think have resonance and echoes today, all of the things that we highlighted. The joining of the OECD and the issues that an advanced economy today is dealing with I think are very relevant. Obviously, the bullet train, and we're going to hear more about technology in the next panel, and, of course, the Olympics. So we want to talk about all of that today and to sort of dispel some of the myths, I think, about the trajectory of Japanese growth, which I think most Washington, sophisticated Washington audience, probably have a general view of Japan over 50 years as a kind of an arc going up through 1964 to a peak in the late 1980s, and then sort of a steady decline with possibly a bounce in the more recent time. That's true on some level, but that also misses a lot of complexity about what's going on in the Japanese economy, and I think that's what we want to explore in this panel. We have a terrific group of panelists to do that with us. You have biographical information on all of them, so I'm not going to introduce them in detail, but just to affirm who they are in order. Dr. Hugh Patrick is the director of the Center on Japanese Economy and Business at Columbia University. He next to him is Stefan Doninger, who is the senior economist in the research division at the IMF, the International Monetary Fund, also does a lot of research and work on Japan, and Professor Omori is a professor, a chief professor at Tokyo City University and has written a lot about Japanese economic growth and structural reform. Before I actually let Dr. Patrick finally speak, let me just say that as somebody who started studying the Japanese economy in the early 1980s, there were about three or four books that were absolutely required reading, and one of them was this hefty tome right here, which I pulled off my shelf because it's one of the sort of half-dozen books I've kept over the years. It's called Asia's New Giant, How the Japanese Economy Works, and Dr. Patrick was the co-editor of this book, and it is just a book that I still keep, and there are a lot of underlined parts and things you see that's broken, the binder I've read it many times. It really was a seminal work on the Japanese economy and one of the pieces of required reading, so he's been following Japan for a long time and has a good sense of this arc and what's right about it and what's wrong about it, so I'm delighted to have you here, Professor Patrick, please. Thank you very much. Thanks very much. I'm supposed to deal with 50 years in 10 minutes, and someone was making the calculation as to how many seconds each year got. First, I want to say that obviously a lot has changed in the world in the last 50 years as well as Japan, and we have to think of both contexts, so let me simply start by listing some of the major changes in the world economy, and I'm going to speak on economics, essentially. First, this is the period in history of mankind by far the fastest GDP growth in the world. It was a period in which we set up instruments for increasingly free trade, GATT and WTO. It was an era in which financial markets became truly global. It's been an era in which we've had rapid economic development of emerging economies aside from Europe and the United States and North America, and the challenges of absorbing them into the international economic system. In the late, I guess it was in the 70s and particularly in the 80s when Japan was perceived as a challenge and how to take it into the system, and it was a country that in many ways was already in the system, but it was in the economic dimensions that it was how to absorb. Now we have China, which is a very different ballgame, but we have the same problem of how to absorb a new major player, and you think, of course, of the major technological changes that have occurred over the last 50 years. Let me just mention the internet, which I think is going, is transforming the world, but many small changes, most of them small and incremental. And of course, we had the Cold War in its end. We had the rise of Japan now with China. I commented to myself that we've had a sort of a Luddite response in parts of the world to this, and the Luddite response to the industrialization at the beginning was to destroy factories and break machinery, and the Luddite response now in the Middle East and in parts of Africa are to kill people, get rid of human capital rather than physical capital, and I would say that's not a step forward. So today, Japan is this major player in a tremendously developed global economic system. And my next point, of course, is that Japan itself has done very well, partly because of these external opportunities, but mainly due to its own domestic forces for economic growth and transformation. I think it was really important psychologically for Japan, as well as institutionally, that it perceived it had graduated in 1964 from being classified as a less developed country by the IMF to becoming a developed country and a member of the OECD. And that was tremendous symbolic importance, as well as institutional importance. And of course, the Olympics were a great time. Were any of you at the Olympics? I was. I was going to Japan for research and you could easily buy tickets in the United States for the Tokyo Olympics, and so I bought a lot to give to friends, but I ended up using most of them myself because it was so fascinating, but that's an aside. Anyway, it was a vibrant time, but if you have to think about it, Japanese productivity was still low relative to the United States. About 10 percent of GDP was still produced by agriculture, the primary sector, and it was about the per capita income was roughly a quarter of the United States level, and then it's grown substantially. Today, the share of agriculture is miniscule, and primary sector is about 1.2 percent of GDP, and you've got more people there, but they're mostly old people, as you know. I'm not against old people, but in terms of productivity and future farming, it's not where Japan is going to go. Manufacturing rose substantially as a share of GDP, and then began to slide again as services became more and more important, as is true of all highly industrialized economies. Growth was achieved during this period by gradual increases in the labor force, but that topped out in the mid-1990s and has been declining since then. It's by large amounts of investment, both by the private sector and government investment, and I would think mainly it was driven or, importantly, it was driven by being able to get access to foreign technology, absorb it, and improve on it, and then develop Japan's own technological capabilities. During this period, it was a market-oriented economy, initially with a very active government industrial policy role, but that decreased over time. Japan had a great capacity to absorb technology. It had a highly educated and skilled labor force, which differentiated it from what we would think of as developing countries. My sense is that Japan is always quite rigid in the short run and incredibly flexible in the long run, and that's a major adjustment process. I break the 50 years down into five periods, the first 25 years of very rapid catch-up growth based on high savings and investment in technology, and with increasing productivity and production, and increasing hubris and indeed arrogance at times, which led to excessive increases in stock prices and property prices, and then the big bubble bursting of stock market and property. I went to check, and the stock price, Nikkei price index is around $39,000 at the beginning of 1990, end of 1989, and it decreased by 82% erratically to a trough in October of 2008, and it's about doubled, a little more than double that now, but that's a, you know, think about it. I suppose your asset prices dropped by 82%. How do you adjust to, and that's been part of the story as to why the next 20 years from 1990, 2010, or 11 were years of mediocre economic performance. It's called the last decade or two decades. I think that's a mistake because there's a huge amount of institutional change and other kinds of changes, but the economy, and the other thing is it absolutely, it was not an absolute decline, it's just that it was very slow per capita growth, and it was, it was erratic. So, and then, of course, it started to come back after 2002, and then the global financial crisis hit Japan, hit Japan harder than it did the United States in terms of decline in GDP. And so, when I think of the next, of where we are now, we're in the, so the final, a new phase starting from around 2012, which is gradual recovery, getting it back about to the 2007 peak, but still a long way to go. Let me just list some of the features of the last 50 years. Clearly, the rise in industrial competitiveness, autos, consumer electronics, and transportation, as we're going to talk about later. Agriculture has never been economically competitive because there's not enough land per farmer. And even though almost no children of farmers have become farmers for the last 40 years, still you have the continuation of 6% or 7% of the labor force, maybe 3%, 4% of the labor force. In farming, average age is 65. TPP is very important in helping accelerate that process of adjustment, but there's a certain demographic inevitability to the adjustment process. Clearly, productivity increases have been lower in most services, though we do have the same concern and the excellent highway infrastructure. Urbanization has been another feature of the last 50 years, high degrees, particularly Tokyo Kanto area and the Osaka Kyoto Kobe Kansai area. I think there's a mixture of continuation of some values and institutions and behavior and at the same time, evolving change. And for me, what's really interesting is trying to sort out the generation level of changes in values and attitudes. Young people, I think, are probably more optimistic than their grandparents and maybe less driven in a work sense, better educated. How to sort all of that out is difficult. So that gets to my final main theme, which is demography. As you know, Japan is a leader in many ways, but it is the global leader in terms of moving on the demographic side to very low fertility and to improved health and life expectancy and now an absolute decline in the population, one of the very few countries to be in this stage. And there are three points. One is that you have to have slightly more than two children per woman to maintain a stable population. And Japan's that 2.1 or 2.08 number, Japan has been below that since 1974 and has went down to 1.2 or 1.3 or so. It's around 1.4. The obvious group has ambitions and fantasies. And the fantasy is that the population, that fertility is going to go up to 2.1 within the next 50 years. It may be a correct fantasy, but it's something we might want to talk about. Secondly, with the fertility decline, some less young kids, that meant that the people who are normally called the working age population, which is 15 to 64, that number of people peaked in 1995, the proportion of the population 65 and over is now 25 percent and that's going to grow. The good news is that most of those people are healthy and energetic and want to do something. It's not as if they really want to sit back and retire. Japanese thinking about demography is inconsistent. On the one hand, at the micro level, people say, oh, yeah, I want to have one kid or two kids, all right? That means you have low fertility. At the macro level, everybody says, oh, it's terrible that the population is falling. And there's a third thing that's not said, which is we don't want to have immigration. That's not discussed. That's still sort of taboo. What we say is we'd like to have some foreign workers, but that's very different. So how are these demographic going to have, what economic effects will they have? Productivity growth has been based in economies in which markets are growing, populations are growing. Will that productivity growth process be the same and at the same rate when population and markets are declining? How do companies, large companies, respond to decreasing domestic markets? We're already seeing that. And how well will older retired Japanese live? What will they consume? What health care? How to be financed and so forth. Let me make two final points. We have a saying that Japan is back. That seems to be a very common phrase today. And I don't think that the Japanese economy is back because I don't think it ever went away. So to say that it's back implies that somehow it had disappeared or it had declined. It didn't decline. It stagnated, but it was slightly improved. And by the way, it didn't do so if you compare it with the United States. The United States and Japan's performance over the last 20 years is not so different. The second thing is I do sense a sense of vibrancy and of excitement and positism. Two years ago, there was a sense of resignation, you know, Shiong and I. Now I don't feel, I just come back from several weeks in Japan and I felt a sense of renewed vigor and excitement and sort of a feeling, yeah, we're going to move ahead under very different circumstances. So let me stop here. Thank you very much, Professor Patrick. And you've touched on a lot of important themes that I want to come back to when we get to the discussion point. But let me move on to Stefan. But before I do, let me apologize because I gave, I read the title from the biographical pack, which I think is slightly out of date. You're actually a division chief for Japan at the International Monetary Fund, so he is responsible primarily for Japan. So, apologies, Stefan. Please. Well, thank you. I think Senior Economist sounds more prominent. Thanks for the invitation. This is a great topic, something that I've been working on now for five years. And I will focus my remarks on the tail end of the period. I will try to bring some history in, but at minus five years in 1964, I have a deficiency in terms of experience to share. I thought the theme that I'd like to focus on is emerging from the lost decade. And there's always a possibility of over-interpreting current developments as being historic or being a change in trend. But I think there is something genuine in the change that we've seen over the last two years that's been unqualitatively really different from past policies and past developments. Just to give a context on how abinomics, the macro-policy environment in which Japan is right now, is different from the past. Relative to the last 15 years, that's when I think the lost decade started in the late 1990s, GDP is down in nominal terms by 7%. So there's no country that I can think of that has a persistent yet slow decline in nominal GDP and yet not been knocked off its feet. Also, developments in Japan are not only important for Japan itself, they have really a resounding international relevance. We heard of a few items. Japan has aged faster than any other country, but within the region one just needs to look at China or Korea and you find that these challenges maybe five, 10, 15 years ahead, not so far away. Germany, by the way, has also declining population. So this is something that the other country should look to. Deflation. This was not a topic that you would hear being discussed outside of Japan. It is now on the table. It's being very intensively discussed whether it's an issue in Europe, in other advanced economies, and this is not the type of inflation that we're familiar from the textbooks, from the Great Depression, with a debt spiral. This is sort of like a mild, steady state, low price environment that sucks out the energy from economies from private activity and I think it fits well with the theme today of how to revive dynamism. And the third importance that Japan wants to overcome or the third important issue that Japan wants to overcome is an enormous fiscal debt problem. It's unprecedented in its size in advanced economies and it's unprecedented in the need of sustained adjustment. That GDP ratio is 140% of GDP. It was 10% of GDP in 1991. So it's been a huge increase since then. Gross debt is 240%. So you have to get out of inflation. Deflation, you have to solve your debt problem and you need to deal with aging. So this is really sort of like a toxic mix where the basis before Japan decided to go into aerodynamics. Quickly, what went wrong to end up? And I think we heard many, many of the themes. I think I would summarize it from our perspective as there is not really one single smoking gun. It started with the bubble burst in the 1990s. Then there were legacy problems. Legacy problems meaning financial sector and corporate sectors really took a very, very long time to repair balance sheets. A theme again that we are talking a lot about in Europe these days. Second, this demand decline that was induced led to deflation. There was first an outcome, but now by staying on it actually became a cause of the cause of the lost decade. Real interest rates incentives for which is the market for incentives to investment were very, very high. You can't get negative interest rates. So you pay more on your debt. It sucks out the willingness to sort of be more forward looking by and durable goods. If you are a pensioner, you're very, very happy just having your money in a deposit account. You get zero interest rate, but it's great. Your prices are falling. So you have the insurance companies that they're rebalancing into safe assets. They're holding bonds. They don't want to invest in equities. So it becomes sort of like a whole negative momentum that develops. And then of course there were external shocks. We know the Asian crisis in the 1990s just coincided with the start of the onset of deflation. The global financial crisis was really hitting Japan extremely hard. It had the largest recession. And one can almost say among advanced economies, it was a bystander of the global financial crisis. And then we had of course the earthquake, which was another setback during that period. All right, so I think I set the stage for Abenomics in what it tries to accomplish. And the idea of Abenomics is of course to be a break with the past. I think it's the most successful marketing tool in economics that I can think of. And I even went myself and looked the word, you can look at the use of the word arrow in Google on the web. And there was really a spike that you see that word being used in searches in 2012 and 13. Well, it's a very simple concept. You have monetary policy being the first tool to get out of deflation. That's the first arrow, second arrow. It's called flexible fiscal policy. First stimulate, then adjust. And the third is the third main arrow, which we'll hear in the third presentation, is about raising growth. It's a comprehensive approach. So it's one that relies on a simultaneous action and it has to be done or it's meant to be done in a big bang approach. So how is it working? And we just came back from our article four consultation. That's our annual consultation with the authorities where we write our annual report about the status of the economy and its policies. And I think the nutshell is progress has been very good in some parts and are not so good in others. So we're going to uneven progress, but I think what we're most concerned about is what will happen after one or two years. What will economics will look like in two to three years when stimulus fades and when sort of like a first boost from improving external environment is sort of like fading. Let me quickly go through the three arrows just to sort of give you a rundown of where we see things happening. I think progress has been the strongest on the monetary side. I think it's fair to say that nobody expected inflation would move towards 2 percent that fast and that vigorously. A lot of the benefit after the increase has come from the depreciation. The yen has depreciated by over 20 percent since around the onset of arbonomics. It started actually earlier and then has fared into higher input prices and then has driven sort of like the first momentum. But we have seen it sort of like broadening more recently and it has to do with higher domestic demand, higher consumption in particular. And so there's like a momentum carrying forward. I think we're at the halfway point. That will be our assessment and we don't see inflation at 2 percent anytime in the next one to two years, but more in the medium term. That has been our assessment all along. We don't think that's a problem. We think that that will be actually quite consistent with arbonomics and we've been quite supportive of the Bank of Japan. On fiscal, what has happened on fiscal? Actually, the move from stimulus to withdrawal has happened. On April 4 we had the first consumption tax increase and it was I think a major achievement from 5 to 8 percent, a very low compared especially to European standards. A second one is scheduled from 8 to 10 and the decision will be made at the end of this year to be taken place and implemented in 2015. Great first steps. You look at the long-term picture and it's not getting you more than halfway towards where you need to be. The deficit is still at 7 percent and you have a huge debt stock that you actually need to bring down, not just maintain. So I would say some progress, but not where we would like it to see. What we want to see is a concrete plan, what's going to happen after 2015. Spillovers and ramification for the rest of the world would be enormous if you see a sharp rise in interest rates or some kinds of instability. There's this perception that 90 percent of the debt and that's a fact of it's held domestically. So this may not be able to spill to the rest of the world. But who's holding it? It's not household, it's financial institutions and financial institutions are the large players, they're large players at the global market and that would have huge spillovers to the rest of the world. Well, and let me sort of get back to the final, the third area where I think the progress has been progressed but it has probably the least among the three arrows. And I don't want to talk about the substance of it, this is your part, but let me just put it in a perspective. For one, we looked at OECD countries who managed to raise growth, long-term growth, by one percentage point over a decade. That's roughly the goal. So you roughly have a potential growth rate of around one percent, maybe less right now, and to be sustainable you need to get to around two percent or in that ballpark. So you can think of one percent over one decade. So we looked at what happened since 1980s among advanced economies to have a comparable group of countries. How many did manage to go from let's say two to three or from one to two? There were eight. And some of them quite obvious. You had Finland, you had Sweden. When you think about Finland, it opened market, it became a leader in electronics. And both went through crisis. You had the Netherlands, which had a big labor market reform in the 1980s. You had New Zealand. And then there are other cases like Greece and Ireland, which had good years in the run-up to joining the European Monetary Union. You look at those and there's no clear formula how they've done it. It really depends on country specific matters. So it's not that they're clear that what you can learn from other countries, so Japan needs to craft its own growth strategy. That's the one. The second one is there are only really a few of them that managed it, and most of them went through crisis. Sweden went through crisis. Finland went through a crisis that helped them reform. But this was not the way you would like to see growth raising. So I think the challenge is high. But I think the start was very, very good. And we hope that the momentum stays. Thank you. Thank you very much, Stefan. And that's a great bridge from Professor Patrick's historical overview to kind of get us to the threshold of the growth strategy in the third arrow, which I think is what Professor Omori is going to focus on. And I want to again come back to some of the themes that you laid out. But Professor Omori. Well, can I have my slide, please? First of all, thank you very much for having me. It's my great honor to be here. Let me start with an overall picture of the abenomics. And as for the first arrow, monetary policy, which I think has been very successful, the current focus is whether we can achieve the official target of 2% in terms of consumer price inflation. Many economists think it is difficult, so there may be further easing. As for the second arrow, which is fiscal policy, fortunately, the negative impact of tax hike seems manageable. But even with the second round hike, it is difficult to achieve the 2020 target of fiscal consolidation to eliminate the primary deficit. This graph shows that Japan still has a large fiscal deficit. And the official target is here. And there is a big question. And the government currently does not have a concrete program to achieve this fiscal consolidation. Turning to the third one, as you know, the government launched its revision of the strategy last week, including 10 key reforms to which I'm now going into. First, corporate governance court for listed firms will be compiled. Second, review of portfolios of public and same public funds will be discussed. This can lead to possible rise in the share of equities. Third, a council to promote venture business will be established. Fourth, corporate tax rate will be reduced over the future to a level less than 30%, although how to finance it is yet to be determined. Fifth, a five-year plan for a robotic revolution will be made. Sixth, more childcare services will be provided and reform in tax allowance for housewives will be introduced. Seventh, expansion in variety in regular employment will be introduced, as well as a new system of flexible working hours. Eighth, expansion of foreign trainee system. Ninth, doubling agriculture with agriculture income through reform in cooperative associations for agriculture. The tenth is in the healthcare industry. There are a lot of new ideas here, but perhaps the most important one is the mixed medical treatment on patients' requests. And following Patrick's son, I, too, divided 50 years into two parts. The first half is, I would say, good and happy growth, overcoming the two oil crises. And then we had a peak around 1989. And at that time, Japanese stock value exceeded 40% of the world total. And top 80 banks in the world were Japanese banks in terms of total assets. After that, the second half is associated with lost decays. And I listed conventional explanations for lost decays. And let me briefly go into each of them. Collapse of financial harvest, yes, but 25 years is a little bit too long. And the so-called three excesses have all disappeared a long time ago. There is no longer credit crunch in Japan. So I don't buy this explanation. The second hypothesis is end of ketchup. This diagram shows the per capita GDP in terms of purchasing power parity. And Japan used to be 10% higher than European average, but has been caught up up to the recent past. And Japan was also taken over by Singapore and by Taiwan. So again, this cannot be a convincing explanation. And third demographic factor, yes, this is indeed the case, but the low fertility rate is not exogenous. The diagram shows the ratio of single men or never married men. And you can see there is a big difference between the non-regular workers and regular workers. So non-regular workers cannot easily find partners and have babies. Another factor behind the low fertility rate is the fact that Japan spent little for childcare. Although the total transfer, social security transfer, of Japan is not so small, but the amount of money spent for medical, sorry, childcare was rather limited. And yet another hypothesis is the currency. So this diagram shows what I call currency instability index. And you can see over the past 30 years, yen has been most unstable currency. And my presumption is that there are some correlations among the three variables like this, that is, among the ratio of foreigners, ratio of foreign workers, and currency stability. And Japan was, is long to low for all the three variables. If the currency is widely shared by foreigners, that is likely to be more stable. So all these considerations lead me to think that there might be some fundamental reasons behind the lost decays or behind the superficial reasons, which I think is the segmented and rather closed labor market. And this prevents efficient allocation of human resources and weakens incentives for improvement and large gender gap for foreigners. And this provided a large regular non-regular wage gap. And this gives too strong incentive for companies to replace regular workers by a combination of machines and non-regular workers. And this is, I think, one of the factors behind the deflation. And innovation is biased toward this skilling ones. And this is also a background reason for smallness in the number of venture businesses in Japan. But on the other hand, we have some bright aspect, which is there is a renewed attention to infrastructure. We used to have a declining trend in the GDP ratio of public investment. And Japanese people gave up the idea to seek for the tallest, largest, fastest. And actually, the government abandoned the tradition of national development plans. But after the earthquake, renewed attention towards investment in networks, such as bread cranes and linear express, and potential of smart revolutions, such as compact cities, smart cities, is recognized. And we started preparation for Tokyo Olympic Games. And the latest strategy calls for a vision and control tower for regional economic development. So this can well become the fourth hour. Finally, my comments on the latest strategy. The first one is this one is much more ambitious than the previous ones. But still, it remains a wish list. And concrete measures are yet to come in some areas, or I'd say in many areas. But given the high support ratio of the Abe government, I think most of the items will be realized. And secondly, as for the labor market reform, which I think is very important, I would say it is a gradual approach. And among many agendas, I think the most important one is the equal pay for equal work principle yet to be ratified by Japan. But this requires political capital, because one has to fight against vested interest. So maybe we have to wait until the second hike of consumption tax. And thirdly, room for more international or interactive approach with developing Asia to take advantage of TPP, RCEP, and rapid increase in foreign visitors. Perhaps you know that four years ago, Japan took an initiative to form a big wide growth strategy. And the government could have taken a similar approach, cooperative approach this time. But perhaps it was difficult this time for the well-known reasons. Thank you very much. Thank you, Professor Emery. Wow, that was too fast, because there was so much rich information in there. I need to go back and look at that. Fortunately, we are going to have that once we put this on our website. You will be able to, I think, to look at that PowerPoint presentation, which had a lot of rich, thought-provoking data in it. And I want to go back and look at it. Let me just, before I open to the floor, let me ask two questions as Chair. One is about the growth strategy. It is the package that was announced last week. So it is easy to be sort of skeptical about these packages, partly because there have been so many of them over the years. My research associate, David, found an article dated 1986 when the Mayakawa plan, if anyone remembers that, was announced. And it is eerie how similar some of the content is about tax cuts and reduced working hours and agricultural reform. Actually, the biggest difference in this article is that gross national debt at that time was considered at a critical level, and it was only 47.9 percent of GDP. But otherwise, this is eerily like today. So it is easy to sort of start with a kind of skeptical or cynical view of these growth packages. But it is also easy to do that because the challenges are so profound. I mean, when you look at sort of the basic formula for GDP, which is number of people times the amount each person can do, with the number of people dropping so dramatically, the workforce dropping by 30 percent by mid-century, and the kinds of productivity gains that you would need to achieve to offset that just seem daunting. So I guess my question is, against all of that skepticism, I think it is easy to sort of miss some of the kernels and the seeds of future progress that might be embedded in this package. And I see a couple like the corporate governance reform. That strikes me as interesting and potentially significant, and I wondered if people could comment on that. And some of the labor market issues and whether getting some of these ideas to get women into the workforce in a meaningful way, elderly people, selective foreign workers, it is obviously not going to be a huge immigration wave, but whether some of the targeted reforms might be helpful. So I just am curious that that or other things that might really be things that we should keep an eye on, even if right now they don't look like they're major significant changes. Does anyone want to comment, Stefan? Sure. Thank you very much. On labor, we've been and our managing director will come to the conference on women in September, but we've been working quite a bit on the economic impact of having women in the labor force. And we had a nice little paper called Can Women Save Japan? A few years ago that got some traction, what we would try to do is calculate by how much you can raise growth by bringing women in. A couple of facts, women are clearly very highly educated, so it's not that women don't have the skills. And it's also not that women don't really work, but they drop out often and don't return to the labor market. So you can make some calculations where we looked at if you can bring women into the labor force to rates that are similar to other comparable countries in the G7. You can think of during the transition period, the growth could be boosted by about a quarter percent. So it's not a huge amount, but it's not negligible either. Of course, when you then dig a little deeper, it's not quite enough to provide the opportunity of employment. You also have to have facilities in place, so women can actually depart from other activities that they usually carry out with this child rearing often. So childcare facilities is one thing. But one should also not forget that Japan is an aging society who's taking care of the aging population. Usually it's one of the family members, and they I think there's some complementarities with bringing in foreign labor. We've seen it a lot in Europe. There are a lot of, in my own family, there are a lot of benefits in sort of providing this more services, that more labor-intensive services to an aging population that brings in women, but sometimes also that needs to bring in other sources of labor from overseas in order to get that advantage. So that's on labor. I think setting a priority is very, very important. I think I like that list of the 10 items, and I don't think it was prioritized in any way. I think labor should be one of the top priorities that you'll be focused on in the growth strategy, and we haven't seen quite that much. The second one, very briefly on corporate governance. Now, where did this come from? It started with a commission reviewing the pension fund. The pension fund has about 25 percent of GDP in assets and holds more than 70 percent in government bonds. I think it's 60 something, 66 percent. And there was, of course, in comparison, looking at a long-term investor, you have more room to rebalance to higher-growing, more riskier assets, and that has gone underway. And Japan just recently adopted a stewardship code. That's a code that has been, I think, it was introduced in the U.K. now. Japan and other countries have adopted it, and that's for institutional investors. Set out principles that they sign up voluntarily to become, to oversee their investment and be stewards to the assets that they invest. And in Japan, what this might lead to a more aggressive shareholder-ship activity. I think there's a pervasive passivism. Corporates sitting on a lot of cash, much higher in comparison than other countries. And there's a consideration, if you don't invest it, why don't you distribute it as dividends? And I think that's one aspect. And the complementary aspect, then, is the corporate governance reforms at the corporates as well. If you get more push or you get more accountability questions from your owners, you may also have to have a board that has outside views being brought in. So I think this is really, really an important initiative, and we do think this has a macro-impact. Thanks. When we talk about women's participation in the labor force, there are two important dimensions. One is the number of women increasing the participation rate. And that, simply by increasing the number of workers, increases total output. Doesn't necessarily increase output for worker, but increases total output. But the second thing is that by having less than 10% of the management positions in Japan filled by women means, essentially, that you are not using half the smart people in Japan, women. So if you can increase the decision makers, the managers, up to 30%, 40% over, and it will take a long time, presumably you will get a higher quality of decision making. There is a study of the United States that suggests that about 20% of the increase in U.S. productivity over the last 30 years was because we, because, essentially, because of affirmative action, because we moved from decisions being made overwhelmingly by white males to decisions being made by a much more, a much wider variety of smart people. And in Japan, when they talk about variety, they're talking about females. Here we have a different set of dimensions. But presumably, this means in the long run, as women take more and more important decisions, you'll get more better decisions and productivity will grow up, go up in Japan. Second thing on corporate governance, when we remember that when we talk about government, corporate governance, we're really talking about the large listed companies that we know something about and the government can have some influence on. And that excludes the myriads of small and medium enterprises that are, essentially, family owned. But what's important is that the large companies sort of set the social norms for what are appropriate behavior. So it makes sense to raise these issues because that's where you can do something and it'll also have some effect. My own sense is that Japanese company, management controls Japanese companies more so than any other economy I know. And they're not going to give it up, that power. They will give it a little bit here and there. So it's important that management itself change its attitude from saying, we don't care that much about return on equity and they don't seem to to an attitude in which they care a lot more about return on equity. And I think that's the way you will get changes in corporate behavior. Let me just make one final point. When we're trying to evaluate the Japanese economic performance in the future, are we talking about total GDP or are we talking about GDP per capita or are we talking about GDP per work hour? These are very different. I think the problem for us, for me, is that I've always associated growth with rising GDP, taking population increase for granted. When you have population decrease, GDP is a much less relevant figure. What's important is GDP per capita and because that's telling you what is happening to the well-being of the people. If we were a political scientist, perhaps we would say, well, national power depends on total GDP, but I'm not even sure about that. It depends on a lot of other things. So as an economist, I'm really interested in seeing GDP per capita and the crucial driver there is going to be productivity of the numbers of workers, productivity per work hour. And that sort of seems to be on the supply side, but in terms of just where my objectives are, is let's start thinking now in the future about GDP per capita, not GDP. Okay. You want to respond to that? Very quickly. And I fully share your view on GDP. I think what GDP comes in, as opposed to per capita, is that if you have to pay back a huge amount of debt over some time, you can't pay it back by higher per capita output if your population is shrinking. You need to have the overall resource envelope. So if Japan wasn't in a fiscal situation that's so bad, you may not have to focus on growth per se, but you have to, I think. So you would believe in immigration as a way of solving that? I think that there are many ways. I think this is one. Productivity growth is another one. Investment is another one. Everybody's in favor of productivity growth and investment. Yeah. Okay. Well, we're going to have, by the way, I'm sorry, Mr. Omori, we didn't give you a chance. Oh, sorry. I didn't mean to respond. As for the corporate governance, I welcome the fact that the government put it to the top among the 10 areas. And as a former chair of the APEC Committee, I remember that the U.S. government has taken excellent leadership in this particular area. And as for female participation, yes, it is important. And unfortunately, Japan has ranked very low in terms of gender gap index. But I think we shouldn't take this issue in isolation because I think it's a reflection of the whole labor market distortion, especially the problem that husbands have because husbands have to work longer hours. They have to show loyalty to the companies. So the whole overall approach, I think, is important. Thank you. That's a very important point. And I wanted to then use that as an excuse for more shameless advertising, which is that in the fall, probably in mid-September, we're going to do a conference on womenomics. And we're going to look at the issue in totality, not just in some of the kind of somewhat simplistic ways that it's been looked at today. And I think we want to look, including at the overall story of how both men and women are participating in the workforce. So stay tuned for more on that. Okay, I had another question, but I want to give people in the audience a chance too. So please go ahead. You've been very patient. Hi, I'm Dr. Donna Wells. I'm an expert in the Russian language Internet. I've heard much enthusiasm for TPP congressmen, academics, et cetera. But I wonder if we're not learning from the European experience. Are we putting enough thought into whether or not TPP will benefit advanced economies like Japan, but will stymie places like Chile? So asking about TPP and its benefits for advanced countries like Japan versus others who are not as advanced, although Chile is an interesting example. But anyway, okay. Well, if you think that by and large, opening markets and reducing restrictions on competition are good for any economy, then you're sort of in favor of TPP in general. The thing that's about TPP is that it goes far beyond this standard traditional reducing of tariff barriers, direct barriers, and goes into a whole additional sets of rules and regulations about state-owned enterprises, various kinds of corporate responsibilities. And those are presumably good. We don't know the details and we don't know what the details are of what's going to come out of this. I suppose it's, you know, like lots of things, it's partly a matter of faith that we believe that this is going to be very beneficial for those countries. The negative is what about those who are not members, but presumption there is that this will be an opening wedge for a wider set of, you know, the claim that this will be a standard that other countries will aspire and eventually through a renewed Doha process or Asia Pacific process or some other process, this will continue is sort of, I think, lies behind the thinking for the developed countries as well as the developing countries. Yeah, I mean, I think Chile is interesting because they've chosen to join this negotiation and presumably think that the benefits to them will be, you know, substantial and the costs can be managed. They have, like the other less developed members of the group, an opportunity to negotiate, you know, derogations and special treatment, which is not in their economic interest, but has may reflect political realities. And I would expect that there will be in the end some differential treatment of the different members based on the size and sophistication and all the rest of it, but Japan will benefit from that as well. And so will the United States. So it's not a clear cut division between the advanced and the less advanced. And I agree with Professor Patrick that the idea of TPP is to be a process that grows as it has from five members to 12, ultimately to all the members of APEC and then beyond and so it's to pull other members in and to have them benefit from these new rules and market access opportunities. Good morning. I don't know if it's too detailed. I just want to ask, address the body. Can you identify yourself, please? I'm Annie Wilderman. I'm a Filipino-American, very active in the Filipino-American community and trying to define the engagement of the Filipino-American community with reference to the CSIS initiative. I was just in the Philippines last year and I was very impressed and grateful about the highway that went through the former U.S. Naval base. It was apparently told to me, built by Japan. So people refer to it as Japan Highway. And my question is, is your infrastructure effort, does that include your policy on these type of projects in the Philippines, especially or outside of Japan? So the infrastructure component I know is rising towers and all this, but would that affect your policy on helping these kind of infrastructures outside of Japan? I don't know if Professor Omori wants to comment on that. First of all, we had a conference earlier this year on Japanese Development Assistance and the Philippine Ambassador was here and talked about some of those Japanese projects here. Maybe you were here and heard that, but you might want to go back and look at that discussion because it was interesting. I mean, I have something to say. If you don't, Professor Omori, go ahead. Yes, I think that kind of thing can be an important ingredient of what I think as collaborative approach with Asian countries. So now, because of the internationalization of economic activities, unilateral strategy is not sufficient and not only in terms of physical public work, but also in terms of perhaps you know the word PFI and the software know-how as to how to put it into practice is an important area for cooperation. It's a major topic, infrastructure investment and connectivity in the Asia Pacific region or major agenda item in APEC, in the East Asia Summit, in a number of other forums in the region and US and Japanese cooperation in that area is also part of our bilateral cooperation. So it's a big issue. It's interesting that Japan defines its foreign aid assistance very much in terms of the mutual benefits of the foreign country and Japanese business. And so they're looking for win-win deals where you will have usually a major infrastructure project that has what we would call public goods or external benefits. And at the same time, a lot of the infrastructure activity involves Japanese construction companies and other companies and that probably is sensible from the viewpoint of the recipient country as well as Japan because it means that you develop bigger and better business relationships that sort of have indirect effects that you can't project, but usually are positive. Okay. Hi, I'm Jenna Gibson. I'm with Georgetown University. And I guess my question is if these policies to increase the number of women, the number of foreign workers in Japan, even assuming that that does work and the literal number of those people in the workforce does increase, is there something that can be done or is being done to also change the culture, I guess, of the workplace so that those people are welcomed and stay in the workplace for the long term? I think Professor Omori alluded to that, but does anyone want to talk about the broader question of a comprehensive approach to labor? I think active use of foreign workers will expand the opportunities and does not necessarily lead to sort of decrease in Japanese people opportunities. So we can reasonably expect a win-win situation. Okay. Yeah, one item that could be looked at is the hiring process for regular workers. It's usually a one-shot game, so you exit the college and then you have a one-time chance to get a regular job. I think this could be broken up, this could be reconsidered. And I think that would also be a signal to move a little bit away from a less tenure-based employment environment to sort of more flexible arrangements that allow also horizontal movements, meaning entering after doing mid-career interruptions, if you come back from maternity leave, it's very unusual to hire somebody back into regular position. And I think it's very difficult to get it at the first place. I think one of the problems for women entering the management track, particularly in traditional Japanese companies, is that men are not used to that and they're going to have great difficulty in adjusting, both the men and the women. And I think that's a bigger challenge than dealing with foreign workers, which after all, you define and isolate and don't absorb but utilize. But how to handle the broader sort of human dimensions of women taking substantial significant roles in the company and in other leadership I think is probably the biggest domestic challenge. And it also refers to, I think the traditional image of a Japanese company is changing. I think the traditional image of marriage is changing. It used to be that the husband's job was to work very long hours, not necessarily hard, but very long hours and get home late. And the wife's job was to take care of the kids and do everything else. And I think, and so you had sort of absent fathers. I think that's changing. I think some young people don't really want that model. And I just contrast it with, I don't know how many of you are, but I think most Americans even in professions go home for dinner. And I think most Japanese professionals still don't. And with that changes, you're going to have a very fundamental change in men, women relationships, husband, wife relationships, work, career relationships. As I say, I look forward to exploring more of this when we do womenomics again in the fall. But good question because there are a lot of dimensions to that. Other questions? Yes, ma'am. Hello, I'm Grace Clegg from the East West Center in Washington. I really do appreciate the more provocative addition of this title of the third and fourth arrows. So I thought I'd bring up the question of the fourth arrow, drawing us back to this 1964 theme. Seems that when we look back at the Olympics in those times, either Japan 64, Korea 88, there was always this image of, this is the country coming of age, really having its debut on the world stage, wonderful time for its development and its image in the world. But it seems that in recent years, as we have these run-ups to Olympics, London comes to mind, the questions of challenges for Brazil in the future. So there's a lot of criticism about the expense of putting on these shows. Studies saying that the investments made of and the facilities and infrastructure rarely match the expectations for economic gain. So I'm wondering, is this fourth arrow more of a psychological boost to the economy or are there concrete gains expected from Japan hosting in 2020? Thank you. Great. Now I looked a little bit into the issue of the economics of Olympics and you actually pointed out quite, quite well, is there is the Olympics of coming to age and that has often quite measurable economics before and afterwards. And then you have the Olympics of success and not success. You had, I mean, LA in the U.S. is one, Atlanta I think was much more successful. And I think the point is a fair one that for Japan you probably shouldn't expect an infrastructure boom. I mean, few stadiums in a big, big economy cannot be a boost to the economy. I just remember, I looked specifically, I worked for some time ago in Germany when they had the World Cup in Germany. It was not visible in the economics data what happened. There was a little bit of a blip in spending on travel but it was minor. So I wouldn't put my hopes up that that's going to be having a large impact. I think it offers a confidence boost and it also offers a veil for some reforms that might go into bringing in foreign labor, for example. I think we have shortages in foreign labor construction right now. I think it's easier to sell when you say this is also in connection with the Olympics. So I think it has maybe some sort of catalyst function. Yeah. That's a good segue into what will be the last question if I may. I'm going to just ask my second question now about confidence. As I mentioned when I introduced this panel that I think a lot of Abinomics is, I've used the joke, half-joke, that it's a confidence game, a con game. I mean that cynically, but I'm also being serious that it's actually, a lot of it is about convincing businesses to invest and pay more in wages, convincing consumers to spend. So to what extent, broader than just the Olympics, do you think that that's true, that there is an element of confidence here that's really important to this discussion and that policy needs to be thinking about how to promote confidence? Is that an important element to Japan's path forward? In each, if each panel has a comment. My sense is that, in fact, the private sector is quite confident about itself and its capabilities and its future. Individual companies and private companies, big companies, small companies, and that we sort of forget that because we look so much at government policy and Abinomics. And so I met with a number of businessmen because I'd always loved doing that when I was in Japan last month and I got a feeling of energy and self-confidence and certainly young people felt very self-confident about their futures, able young people. And that took, that was sort of wonderful surprise. There's a skepticism as to whether Abinomics is going to work. There's a skepticism about the government, but not skepticism about themselves. And so I came away feeling quite impressed. Confidence. I think very, very important. Our theme last year in our report was looking at the corporate side, investment. Why has investment not picked up? That's one of the questions that we asked ourselves. And empirically, so there's all kinds of measures that you put in that affect firm decisions. But the one that stands out for Japan is expectations of businesses to be able to grow after three years. If you have a positive image of your business segment, your prospect, you invest, not necessarily if taxes are lower, not necessarily if interest rates are low because they are already low and not necessary of other corporate reforms. It's sort of like the prospects and that's I think what needs to be managed. Even if reforms, let's say, one example is in the electricity sector only happens in 2015 and 16. If they're set in stone, firms invest now and I think we can have the payoffs already now. But management of these expectations is key. Well, I think it is true that abenomics is a little bit confidence-led recovery. But at the same time, I'd say confidence matters because it has been too weak in the past. Whether or not the improved confidence is followed by real improvement remains to be seen. And that is why I think the implementation of the strategy is important. Okay, thank you. Well, let's wind up there. We're just about on time for our coffee break. Let me thank the panelists for very stimulating presentations and for being so responsive to the questions that were asked. Please join me in thanking them for their presentations.