IMPACT Interview: Heizo Takenaka (Part 2/3) What do successful people have in common? They can express the source of their dreams in words

2016/07/08 | By IMPACT Japan

IMPACT Interview: Heizo Takenaka (Part 2/3)
What do successful people have in common? They can express the source of their dreams in words

This is the second part of an interview series with Heizo Takenaka, a specialist in economic policy. We spoke about the absence of entrepreneurs in the government, an area in which he can share his ministerial experience, as well as fundamental reasons for why it is so difficult for Japan to produce entrepreneurs.

Heizo Takenaka
Born in 1951 in Wakayama Prefecture. Took up posts as a professor at Toyo University and emeritus professor at Keio University from April 2016. Held successive positions in the Koizumi administration over a period of 1,980 days, including serving as Minister of State for Economic and Fiscal Policy and Minister of State for Privatization of the Postal Services, thus recording the longest consecutive period of tenure of any state minister following World War II. Since announcing his retirement from politics, he has energetically engaged in government-related work, including serving as one of the expert members of both the Industrial Competitive Council and the National Strategic Special Zone Advisory Council, as well as holding positions in the private sector such as Chairman/Director of Pasona Group Inc., Director of Roppongi Academyhills, and Outside Director of Orix Corp., and he is working committedly to develop industry and train human resources.

William Hiroyuki Saito
A second-generation Japanese-American born in California in 1971. Special Advisor to the Cabinet Office for the Government of Japan. An entrepreneur himself, he sold one of his businesses to U.S. company Microsoft Corp. in his 20s. William is currently active in nurturing next-generation leaders, and serves as Chair of IMPACT Foundation Japan, an independent legal entity that he set up. IMPACT Japan Foundation plans and manages the INTILAQ Tohoku Innovation Center as a base for activities by the Qatar Friendship Fund.

Overcoming the idea of the world being controlled by a handful of powerful people.
Focus on the source of your dream to break through the prevailing wisdom of the world being closed.

William Hiroyuki Saito (below, William)
Your challenge took place in the government, a massive organization. Did you find unique hurdles as an entrepreneur within the government?

Heizo Takenaka (below, Takenaka)
I think every society has its own jargon – words or phrases that are only used in that particular world – and the difficulty of the jargon is typically a reflection of the difficulty of that world.

I may have mentioned this to you previously but try to translate the following sentence: “The pending item moved today, but only the introductory remarks will take place today so the closing is likely to come in two weeks.”

I’m sorry, but I have no idea!

I am sure anyone working in Kasumigaseki would understand it.

Let’s start with “pending item moved.” After the Cabinet prepares a bill, it sends it to the legislative branch because the legislators are the ones who decide whether to approve the law. However, the legislative branch does not immediately review the sent bill, and this puts it in a “pending” state.

The “opening remarks” refers to the explanation of the responsible minister required at the start of the bill’s review. The remarks cover the purpose of the bill and request consideration of the bill by the legislative branch.

The “closing” refers to the closing questions. The bill goes to a committee decision after this step. The decision by the committee means the bill will pass. That’s because the bill has already received approval from the ruling coalition. Once decided by the committee, the bill passes.

Opposition parties try to stop the decision through various means, including raising unusual scandals.

It sounds more like code words from the security field where I specialize than jargon!

Everyone in Kasumigaseki knows this difficult jargon. But others have no idea what it means. This is precisely the kind of thing that is used as evidence that a handful of people control the process of deciding policies and laws.

This is probably confusing to you as someone who has come here from abroad.

Yes, it is!

However, the most important thing I learned in this world is always going back to the starting point and basics. For example, Prime Minister Junichiro Koizumi formed a Cabinet by himself without getting the approval of party factions. He was criticized in the political world as a dictator at the time. But he had the support of the general public. The reason was because he followed the Constitution. The Constitution states that the prime minister shall designate other ministers and receive the approval of the Emperor. In other words, Prime Minister Koizumi adhered to the Constitution, while the previous approach actually did not.

I think the approach of getting back to basics is a prescription shared by entrepreneurs in all fields, not only the government.

That’s right. The same is true for the so-called “Three Musketeers” of the Japanese venture world.

Softbank’s Masayoshi Son decided to change Japan with the power of IT. HIS’s Hideo Sawada wanted to share the excitement he felt in overseas travel as a young person with all of the youth in Japan. Pasona’s Yasuyuki Nambu strived to improve the daily lives of working people. People who launched businesses just to make money, meanwhile, have almost entirely faded from their era.

I believe getting back to the basics of your dream is ultimately the most important starting point for entrepreneurs.

Tax Cuts or Subsidies?
Japanese-style pork-barrel politics stymy entrepreneurial initiatives

Mr. Takenaka, you just said that entrepreneurs need “some money.” I believe that’s certainly true, but while it’s difficult to raise money in the private sector, there’s also the problem of the so-called pork-barrel politics on the part of the government. I feel that the spirit of taking on challenges is being harmed by there being too much money, not by the lack of it. Is the government’s money being used properly with regard to entrepreneurs?

I think there is a big problem, as you say, William.
Economists sometimes talk about objective functions. Businesses maximize profit. That is their objective. If that is the case, what is the objective of politicians or bureaucrats? They can say nice things, like making Japan better, but to me, it appears that they want to maximize their influence.

What can politics do to make the economy better?

One way is to ensure that people and businesses who are working hard to make money have a lot of money to use. That means tax cuts. The other is to toss around money. That means subsidies.

Japan spent tens of trillions of yen in the aftermath of the financial crisis to put the economy on its feet again. The United States also dedicated 3% of its GDP to doing the same thing. But the way that the funds were used was completely different. In Japan, 99% of it consisted of subsidies. The United States did half of it through tax cuts.

While subsidies have the appearance of a benevolent system that helps people in trouble, there is an unfairness to them in that the government selects who it is they want to help. From the recipient’s perspective, they also lack continuity since they can be discontinued at any time, right?

That’s exactly it. It can’t be something that lasts forever. There must be a time limit.

A time limit may have the appearance of fairness at first glance, but it means that politicians and bureaucrats can exercise influence by deciding whether to continue or discontinue at that point. For them, tax cuts are not fun because they have little room to decide how to use the funds. The people in Kasumigaseki are protecting their turfs by rationally maximizing their influence.

How do you bring innovation to an organization?
The only way is to turn the countless objective functions into something more functional.

Given the reality that you explained, it seems that the government must change too. Is it possible for such a gargantuan organization to become an entrepreneur?

It depends on what you mean by the Japanese government. The prime minister? Cabinet ministers? The Diet? The bureaucracy?

The “Japanese government” is not a player that exists right? So in order to change the organization, you have to change your mindset and think in terms of functions (functions, responsibilities) as the units. Find usable resources and use them. For example, on an issue that the prime minister is passionate about, urge the prime minister to act. Or increase your influence by securing the support of political parties. You have to change things function by function.

It is important to understand that an organization is a collection of a countless number of people who have different objective functions.

At the end of the day, in order to bring discontinuous change to an organization, it is necessary for each and every member of the organization to be aware that he or she is an entrepreneur, right? In that sense, an entrepreneur is not necessarily someone who starts a business. There should be, and there must be, entrepreneurs in existing organizations who are trying to change them. After all, the meaning of the French origins of the word “entrepreneur” is “change-maker,” in other words a person who gets things done.

But when there are issues to be resolved in an organization such as the government, there may be too little information in Japan to make people recognize that they are issues that need to be tackled.

Yes. This country’s biggest weakness is that the media lacks the literacy that would enable them to make these fundamental issues widely understood.

A recent example that proves the media’s lack of very basic literacy is how it approached the question of how much money to spend on the new National Stadium. The only thing they talked about was the nominal amount on the surface, saying that 100 billion yen was cheap but 300 billion yen was expensive. That argument was nonsense.

How would an investor think about it? How long does it take to recoup the investment, that’s how.

For example, let’s assume that you build the stadium for 100 billion yen and it brings in an annual revenue of 1 billion. It will take 100 years to recoup the investment, won’t it? Well, if you build it for 300 billion and it brings in 30 billion annually, the payback time will be 10 years, right?

Perhaps bowing to the pressure from the views of the media, they decided to do it on the cheap by foregoing building a roof. From an investor’s perspective, it is absolutely better to build it with a roof. You could then stage concerts there, so the possible revenue streams would be completely different. This is obvious when you think about how you should go about using money. I could understand tabloid shows arguing about simply whether it was cheaper or more expensive than the one in Beijing, but even newspaper editorials were doing it. It’s a shame because even if it might be more expensive in the short-term, the actual burden on the Japanese public would be smaller from the higher revenues.

What’s missing is the debate on what’s important and what is not, what’s large, and what’s small. Indeed there are countless examples of what you just mentioned, where only shallow views are being loudly expressed. It’s a real shame.

That said, perhaps we should turn this situation on its head, and look at it as there still being many opportunities remaining in Japan for major change.

(Continuation of interview with Mr. Heizo Takenaka in Part 3)

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