Foundation Updates 10FY2005 Program Agenda 12SPF Publications 12From the Editor’s Desk 12

No. 46, Fiscal Year 2005, Vol. 2

The “new economy” was aruse to lure Japanese invest-ment

Setsuya Tabuchi: In a conversationin a past issue of this newsletter,1) yousaid the term “new economy” wasbecoming fashionable in the UnitedStates. Since America was leading theworld economically, the term hadbegun to spread worldwide. I didn’treally understand what “new econo-my” meant, but I thought it had some-thing to do with the notion that withthe advent of the information-tech-nology [IT] age the economy wouldgrow dramatically because of person-nel-cost savings due to the use ofcomputers and such.

At the time, the Japanese pan-icked. They rushed to invest in IT-

related businesses and to acquiresuch companies around the world.It’s true that IT itself—the Internet,mobile phones, and so on—grew.Looking back now, though, I feelthat the so-called IT revolution wasoverestimated, and that there wastoo much investment in and acquisi-tion of IT-related firms. It wasn’tjust Japan; everyone was jerkedaround and lost out. It seems to methat only Bill Gates of Microsoft real-ly won, becoming a multibillionaire.Kimindo Kusaka: I totally agree.According to a report issued by theNomura Research Institute someyears later, because U.S. IT firms’domestic sales had stalled, theycoined the term “IT revolution” andcommissioned a research institutewith which Ezra Vogel of HarvardUniversity was involved to write areport on “the coming IT revolu-tion.” When Nomura examined thereport, it found that IT hadn’t hadthe desired effect of improvingworkplace efficiency and expandingthe economy. Instead, the Nomura

report said, companies that hadoverinvested were suffering fromthe burden of that cost, and it wasimpossible to find statistical evi-dence of improved productivity;firms that had sold lots of computerscertainly increased their profits, butthere was no such thing as a “neweconomy.” I agree.

I imagine that the institute withwhich Vogel was involved was com-missioned to write a report to targetthe Japanese market. Since the ITboom in the United States had comefull circle, the U.S. industry had topersuade the Japanese to buy lots ofhardware and software, and gettingan institute identified with Vogel,the author of Japan as NumberOne, to write a report would inspireconfidence. In response to thatreport, then–Prime Minister Yoshi-ro Mori allocated ¥500 billion forIT. With a budget of ¥500 billion, inorder to get some of the money gov-ernment agencies began proclaim-ing their intention to launch an ITrevolution, and they all lauded the

No need to worry about either the economy or culture

Japan is still the richest, happiest country

On the ins ide

Kimindo Kusaka, chairman of The Tokyo

Foundation, talks with SPF Chairman

Setsuya Tabuchi

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Special Reports: India’s Rushtoward Economic Power Status

Toward stronger Japan-India relations

Project Report 5

India’s emergence as an economicpower: The role of SPF

Opinion 6

Reports from the Field

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revolution. Since this would alsomean outflows of funds to commis-sion surveys, the great majority ofscholars and companies fell inbehind the revolution. The upshotwas a great chorus of adulation.

Tabuchi: Since I had no idea whatan IT age would mean, I told a closefriend who studied such things thatI’d like to buy shares in an IT-relatedbusiness and asked him what he’drecommend. I bought shares in thefirm he said was currently the mostcapable in Japan for ¥3,900 a share,but within three days the price beganfalling and eventually dropped to¥600. Every man and his dog wereinvesting in IT and buying sharesaround the world, and I imagineeveryone, not only in Japan, lost out.

The IT revolution sprang froma Japanese idea

Kusaka: To begin with, everyonebought computers they didn’t need.When people spend all day staring atcomputers they stop talking to oneanother, and the company’s atmo-sphere deteriorates. This is truearound the world. Nowadays we’reused to it, but things went rapidlydownhill, starting with the companiesthat introduced IT first. Canon andToyota Motor held off on introducingIT, and companies like them per-formed best. It’s better to stick to theJapanese-style management system,where people talk to one another. It’sno good just depending on email.

The IT revolution grew out of thenotion of C&C—computers and com-munication—championed by Tadahi-ro Sekimoto, the CEO of NEC. Origi-nally this was the brainchild ofNippon Telegraph and TelephonePublic Corporation. So Japan was theoriginal ancestor.

Former U.S. Vice-President AlGore admired the idea of C&C, whichproposed linking computers by cableso that information could be sharedinstantaneously the world over. Rea-soning that as things stood Americawould be outdone by Japan, he usedDepartment of Defense funds to cre-ate the Internet. Then, figuring thatthe country that spread it first wouldwin out, he made it available free ofcharge. But since Japan didn’t havethat kind of national assistance, itlagged behind.

Tabuchi: Japan’s way of thinkingwasn’t wrong, then.Kusaka: Japan had the idea first,but it didn’t think of using defense-budget funds for commercialization.Thus, there was definitely a C&Crevolution, but the proposition thatthis would dramatically improve theeconomy was computer makers’ pro-paganda.

Around that time, the presidents ofKyoto and Osaka Universities weresaying, in effect, “There’s nothing atall revolutionary in the field oftelecommunications. The revolution’sa hoax. We mustn’t be hoodwinked.It’s a matter of spreading somethingthat can be done by anyone, withexisting technology. It’s fine if it’sspread naturally, but it’s not right touse Department of Defense funds anda report written by a U.S. researchinstitute to sell it to Japan.” Theywere both specialists in telecommuni-cations, and they were saying, “If itwere a matter of being able to talk todogs and cats, it could be called revo-lutionary, but just being able to writethings a little faster can’t be calledrevolutionary.”

Information has no future poten-tial; it belongs to the past. It’s dead,and differs from intelligence. Justbecause anyone can access data, whatuse is that? It’s education that teachesnothing but data that’s in trouble ifdata are free, because students canquickly outstrip their teachers.

Actually, the Japanese econo-my isn’t at all fazed

Tabuchi: Recently prices have beenrising. Oil, agricultural products,gold, minerals—they’ve all becomeextremely expensive. On the otherhand, both Japan and China havebeen busily buying U.S. bonds, thatis, pieces of paper. What’s the goodof possessing paper?Kusaka: That’s right. They saidpeople would make money from theinformation industry, but the priceof information plunged so far itbecame almost worthless. Now theprices of goods are rising. This is

Kimindo KusakaKimindo Kusaka was born in 1930. In

1955, upon graduation from the Universi-ty of Tokyo with a degree in economics,he joined the Long-Term Credit Bank ofJapan. He was seconded to the Econom-ic Planning Agency from 1960 to 1963.After serving as director, he left the bankin 1985. Meanwhile, in 1984 he estab-lished the Softnomics Center and wasfirst managing director, then presidentfrom 1993 to 2003. He was also a profes-sor at the Tama University from 1989 to2001. Since 1997 he has been chairmanof The Tokyo Foundation (originally theGlobal Foundation for Research andScholarship). He has a reputation foraccurately foreseeing the future, especial-ly in regard to new trends in serviceindustries and the service sector. He isthe author of many books in Japanese,including What Is the Yamato? “Soft”Features of the Mammoth Battleship, TheBreakdown of the Personnel System: TenYears On and the Future, The Study ofWar for a Mature Nation: Things I Wantthe Japanese to Know, The “Economy ofQuality” Has Begun: The Japan ofBeauty, The America and China of Mon-ey, and Japan Will Prosper through Pop-ulation Reduction: The Nation’s Path tothe Twenty-second Century. He wasawarded the Suntory Prize for Social Sci-ences and Humanities in 1979.

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mainly down to China. China churnsout masses of medium-qualitygoods, so it needs huge amounts ofmaterials, which is why the prices ofmaterials are rising. But Japan,which makes small amounts of high-quality goods, doesn’t need so manymaterials. So even if prices rise, theJapanese economy isn’t fazed.

Newspapers warn stridently ofthe dire consequences of risingprices. But this shouldn’t bother thepublic, since the yen is strong.Besides, the Japanese like buyingexpensive goods. When it comes toautomobiles, Lexus, Mercedes-Benz, and BMW are selling well. Inthe case of whiskey, when Suntorymarketed a limited edition—50 bot-tles—of a whiskey called YamazakiSingle-Malt 50-Year-Old Whisky at¥1 million a bottle, it sold out in aday. And when Sanrio put out a dia-mond-studded “Hello Kitty” pen-dant selling for ¥5.5 million, somepeople came to buy it with cash.There are many more such phe-nomena.

Bill Gates of Microsoft was sued inthe United States for violating theAntimonopoly Act in relation to soft-ware. He then moved to switch tac-tics, but before that he had intendedto sell the software in Japan, sinceJapan had bought more copies ofWindows than any other country.He thought about how best to sell inJapan. Those who use computers themost in companies are female officestaff. Since lots of Japanese womenlove “Hello Kitty,” Gates figured thatif Microsoft incorporated “Hello Kit-ty” into Windows it would sell wellin Japan, and apparently he went toSanrio’s CEO, Shintaro Tsuji, to buythe rights to “Hello Kitty.”Tabuchi: How much did it cost?Kusaka: It cost ¥700 billion. Inshort, Gates figured that by incorpo-rating “Hello Kitty” into Windowshe’d make more than ¥700 billion.When I heard this, I thought thatWindows wasn’t high tech anymore.Since high tech had reached animpasse, the way forward was to sell“cuteness.”

The EU is starting to break upas it advances

Tabuchi: Next I’d like to ask youabout the European Union [EU] andthe euro. Fiscal soundness is requiredof the euro-zone countries. If theybecome fiscally unsound, naturallythey’re subject to constraints likeraising taxes or cutting spending, butthere’s no reason to believe they canhonor such constraints. As a matterof fact, the number of countries thatcan’t is rapidly increasing. What doyou think will happen in future?Kusaka: Since it’s more convenientto have unified standards, EU andeuro have a certain utility in Europe.But this means convenience for mer-chants, banks, and securities firms.Convenience for the lives of ordinarypeople is yet to come, and until itdoes there’s a lot of inconvenience.But people will grow used to unifica-tion after some decades, so in time Isuppose they’ll accept it.

This sort of thing always generatesa backlash, though. When it comes, Isuspect things won’t go the way theydid when the EU and the euro werecreated. France and Germany wereat the core of the EU, and, sayingthey’d absorb any losses, they pulledin neighboring small countries. Theyaimed to give the EU a scale on a parwith that of the United States orJapan. As a result the EU grew inscale till people talked about a tripo-lar world, but France and Germanydon’t want to suffer any further loss-es. So I expect they don’t want anymore small countries to join.Tabuchi: Things won’t go well, Iguess.Kusaka: That’s right. The EU willbegin to break up. Whether you callthat a failure or just unavoidable is amatter of interpretation.

Japanese young people are fine

Tabuchi: Looking around the world,we see that the country that’s mostpeaceful, where everyone lives com-fortably and eats delicious food, isJapan. Sometimes I wonder whether

it’s all right to be so blessed.Kusaka: You’re right. You used tobe in the navy. The movie The Menof the Yamato is due to be releasedin December. The battleship Yama-to set sail for Okinawa in April 1945and was sunk off Bonomisaki,Kyushu. About 3,000 men per-ished. Most were in their twenties.Several days before the Yamatosailed the crew had been grantedfour days’ leave. Although theyknew that if they returned to theship they’d die, they all reported forduty. And they died. That’s the sto-ry the film deals with.

The studio in Kyoto advertised for alead role and extras. Almost 1,000young men with bleached hair andearrings showed up. As the numberswere whittled down in successivestages of screening, the young mengradually became more serious.

One handsome young manshowed up for the fifth stage ofscreening conservatively dressedfor the first time. When the screen-ers asked him why he had suddenlydressed soberly, he said he’d askeda teacher at his school whether theYamato had really existed. Theteacher said it had, and that Japanhad gone to war and been defeated,losing everything. The young mansaid, “They say Japan lost every-thing, but today’s Japan has every-thing. So I thought hard about whatJapan has lost and finally under-

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stood that what it’s lost is morali-ty.” The screeners agreed unani-mously to select him for a lead role.

You could get such an answereven from a child, if he or shethought about the question. Thestudio selected about 100 youngpeople for filming, and apparentlyall of them approached the job withthe utmost earnestness. The moodof the location is said to have beenextremely tense and solemn, withthe young people saying they could-n’t take a casual approach to theirroles, realizing that young men ofabout the same age had done suchthings and had actually died. Aslong as we have young people likethis Japan is OK. It’s a good thingthe Yamato was built. And its sink-ing wasn’t in vain.Tabuchi: I see what you mean. Butthe Yamato set sail with onlyenough fuel for a one-way voyage.In other words, it headed for Oki-nawa with no intention of its crewreturning alive. Apparently the cap-tain had resolved to sink with hisship, while the rest of the crewjumped into the sea when orderedto abandon ship and some wererescued by nearby ships. Still, to setsail with only enough fuel to reachOkinawa, with no intention ofreturning alive, seems extraordi-nary even in a time of war.Kusaka: In regard to the fuel,some say there was actually enoughfuel for the return trip. And Admi-ral Seiichi Ito, who commanded theYamato’s Okinawa suicide mission,said, “I will set sail in accordancewith orders. But after that, leavethings to me.” When the ship tookmultiple hits and he realized hecouldn’t make it to Okinawa, hecalled off the mission. At that pointit ceased to be a suicide mission.Ordering the ship to be evacuatedwas the civilized thing to do.

One reason Imperial GeneralHeadquarters ordered the Yamatoto sink was the belief that if Japanlost the war the Yamato would betaken to the States and put onshow, where it would be showered

with insults, and since such abusewould be intolerable, the shipshould be sunk.

Nearby ships rescued the crew-men who had abandoned ship, butbecause it was just before the Yam-ato sank, apparently the U.S.planes simply looked on, notattacking either the Yamato or theother boats. So the episode wasn’taltogether barbarous.

Japan will generate culture asits population shrinks

Kusaka: On another subject, I’vebrought along my latest book, whichhas just been published.2)

Tabuchi: Japan will prosperthrough population reduction?Kusaka: That’s what history shows.Right now the government’s saying,“The population’s going to shrink, soput up with higher taxes,” but that’sjust an excuse for raising taxes.Tabuchi: Apparently there was atime during the Edo period [1600–1868] when the population shrank,too.Kusaka: Right. Partly because ofadverse weather, around the middleof the Edo period the populationslumped. During that time cultureflourished. Since people didn’t haveto raise kids, they had more timeand money to spare, so Edo’s culture

flowered.Tabuchi: Does this mean that intoday’s Japan, too, culture willflourish because the decliningbirthrate means people have extramoney?Kusaka: It’s easy to understand,isn’t it? The same was true inRenaissance Italy. Back then therewas a steep population decline, andthe Renaissance arose. When popu-lation was growing, people had tocultivate fields and build roads,ports, and so on, so they were busywith economic growth and culturewasn’t nurtured. When populationgrowth stopped, people couldafford to abandon time-consumingfields and didn’t have to buildports, so per capita incomeincreased. What came out of thatwas the Renaissance.Tabuchi: At present the Japaneseeconomy is stagnant, but on the oth-er hand soft power is emerging. It’sexactly the same phenomenon, isn’tit?Kusaka: That’s right.

1) See SPF Newsletter Fiscal Year 1998 Vol. 1.2) Kimindo Kusaka, “Jinko gensho” de Nip-pon wa han’ei suru: 22 seiki e tsunagu kok-ka no michi (Japan will prosper throughpopulation reduction: The nation’s path tothe twenty-second century) (Tokyo: Shoden-sha, 2005).

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By Eriko TadaAssociate Program OfficerThe Sasakawa Pan Asia Fund

Toward stronger Japan-India relationsVisits to Japan by Indian parliamentarians

The impending “age of India”

Thanks to the economic liberaliza-tion policies inaugurated in 1991 bythe Congress Party administration ofPrime Minister P. V. Narasimha Rao,India achieved an average economicgrowth rate of 6% through the 1990s.A report issued by the U.S. securitiesfirm Goldman Sachs in October2003, Dreaming With BRICs: ThePath to 2050, forecast that in 2050the nation with the largest grossdomestic product would be China,followed in order by the UnitedStates, India, Japan, Brazil, Russia,and the United Kingdom, thusimpressing upon the world that the“age of India” was approaching.

In the April 2004 election for India’sLok Sabha (lower house) the CongressParty defeated the Bharatiya JanataParty, returning to power at the headof the United Progressive Alliancecoalition government. The new gov-ernment is grappling with impedi-ments associated with the shift to atrue market economy governed by thecompetitive principle. These includehigh tariff barriers, sluggish growth inforeign direct investment, and theissue of balancing profits and employ-ment in state-run and majority-owned, publicly managed companies,as well as a large number of monopo-listic and oligopolistic industries, all ofwhich stand in the way of rapidgrowth. But foreign companies andgovernments eager to enter the Indianmarket confess to impatience at theslow pace of reform.

It is believed that India, with itspotential for economic growth andits actual dramatic growth, willsteadily expand its presence bothinside and outside Asia not only eco-nomically but also in the sphere ofsecurity. In fact, the U.S.-led interna-tional order began to show cracks

after the terroristattacks of September11, 2001, and Japan,which always has ten-sions with its Asianneighbors, looks likebeing left behind byIndia as it powers a-head in its drive togain a permanent seaton the United NationsSecurity Council.

Two well-received visits to Japanby Indian parliamentarians

The rest of this article discusses theproject Enhancing India-JapanRelations: Visit to Japan by IndianParliamentarians, inaugurated inJuly this year with the aim ofstrengthening Japan-India relations.The grant recipient is the Confedera-tion of Indian Industry.

Preceding the launch of this pro-ject, two four-member suprapartisandelegations of Indian parliamentari-ans were invited to Japan, in Novem-ber 2004 and May 2005, as part ofthe People Exchange Program/PhaseIII. Both visits were well received. Onthe occasion of the second visit, anumber of Japanese parliamentari-ans expressed a desire to meet withtheir Indian counterparts, giving usthe strong impression that Japan-India relations were about to bur-geon.

The program organized for the del-egations of mainly young Indian par-liamentarians packed a lot into thebrief span of a week, including cour-tesy calls on and exchanges of viewswith ruling- and opposition-partymembers of Japan’s National Dietand leading business organizations,as well as visits to manufacturingplants. Because the Japan-India rela-tionship is moving ahead simultane-ously on both the public-sector andthe private-sector fronts, the newproject’s programs offer opportuni-ties for dialogue with Japanese busi-

ness people and representatives ofbusiness organizations as well asexchange with Japanese parliamen-tarians. If this leads to building acloser political and economic part-nership, the result will manifest itselfin stronger bilateral cooperation.Maintaining exchange among parlia-mentarians who have visited Japan isalso important. We earnestly hopethat designing programs sensitive tocurrent trends and maintaining abase for networking after the visitswill contribute to confidence buildingbetween parliamentarians and busi-ness people in the two countries.

Exchanges of views during the twovisits mentioned above identified avariety of issues of mutual concern.The Japanese side’s requests werehighly specific and of urgent concernto Japan. They include the conclu-sion of a free trade agreement, recti-fication of the tax problems that arethe chief cause of sluggish invest-ment in India by the Japanese soft-ware industry, India’s accession tothe Nuclear Nonproliferation Treaty,and issues having to do with perma-nent membership of the U.N. Securi-ty Council. All these issues had beenon the table on an intergovernmen-tal level even before the delegationswere put together, and one couldsense the Japanese side’s wish fortheir swift resolution. Even if thenew project does not lead to a quickresolution of specific policy issues,we will be happy if it enhances thechances for cooperation and resolu-tion.

Indian parliamentarians visit with former prime minister Yoshiro Morias part of the People Exchange Program/Phase III.

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India’s emergence as an economic power:The role of SPF

Japan and European countries,where R&D costs are already veryhigh and rising. That explains thetransfer of high-end R&D facilities bysome leading global corporationsfrom Organization for EconomicCooperation and Development coun-tries to India.

Fourth, India can boast a large andvibrant entrepreneurial class thathas existed for several centuries.Fortunately, India’s indigenousentrepreneurs survived even undercolonial rule. Having managed tothwart the strong socialist ideologyof postindependence India, entre-preneurs are now enjoying a releaseof their entrepreneurial energy withthe liberalization undertaken in the1990s. This has given India a hugeadvantage over most other develop-ing economies, in which indigenousentrepreneurs were decimated byeither their colonial masters (Africa,Latin America) or communist par-ties (China, Russia).

Fifth and finally, with the imple-mentation of reforms in the early1990s and subsequent tariff reduc-

India’s emergence as a majoreconomic power in the twenty-first century

India’s economic performance hasbeen steadily improving over thedecades since its independence (fig-ure 1). In the last few years the grossdomestic product (GDP) growth ratehas been even higher, and the aver-age growth rate during the ongoingtenth Five Year Plan period (2001–2to 2006–7) is expected to be about7%. The Planning Commission istargeting GDP growth of 8% in itsapproach paper to the eleventh plan.In Indian industry, which is nowenjoying the benefits of deregula-tion, delicensing, and decontrol, ini-tiated in the early 1990s, the growthsentiment is even more bullish.

The Confederation of IndianIndustry (CII), the country’s premierindustry representative body, hastargeted double-digit GDP inclusivegrowth that is ecologically sustain-able. With an 8% GDP growth ratein coming years, India could begin todominate the global economic scene,as China did during the 1980s and1990s. This would also help India toeliminate poverty, which is clearly atunacceptable levels today.

Some fundamental structural fac-tors underlie this expectation of high

growth rates in com-ing years and decades.Foremost among themis the strong demo-graphic bonus thatIndia is expected toenjoy, with 70% of itspopulation below 35years of age. This willkeep the workers-to-dependents ratio at ahealthy level for theforeseeable future.That is likely to gener-ate rising levels of sav-ing and investmentthat will push growthrates higher. In thisregard, India holds adistinct edge even overChina, whose popula-tion will begin to ageby 2020.

Second, having incurred fairly sig-nificant costs in its effort to estab-lish a multiparty liberal democracy,India can now look forward to reap-ing the democratic bonus. The polit-ical process is shifting, though grad-ually, from rewarding competitivepopulism to rewarding competitiveperformance. With democracy tak-ing strong root, the electoratebecoming more demanding, and thefree media trying to enforceaccountability, the democraticbonus is beginning to emerge. Thiswill make a major difference inimproving governance, pushing upgrowth rates, and achieving consen-sus on the desired pace and direc-tion of future reforms.

Third, India has the largest stockin the world of skilled technical andscientific personnel. Nearly200,000 new engineers and techni-cally trained students join the ranksof the working population everyyear. This comparative advantage ofa young and highly skilled popula-tion strongly complements the situ-ation in developed economies like

By Rajiv KumarChief EconomistConfederation of Indian Industry

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one another, and develop under-standing of and respect for oneanother’s aspirations and achieve-ments.

I referred earlier to the Asian val-ues and ethics that underlie eco-nomic, social, and cultural practicesin all Asian countries. There is todaya need to rediscover the commonelements of this ethical and culturaltradition and make them popularamong Asian youth. This is atremendous task, since it will shapeAsia’s future and contribute to theemergence of a shared Asian identi-ty.

By promoting interfaith and inter-cultural exchange and bringingtogether youth from Asian countriesfor the explicit purpose of sharingtheir diverse cultural, ethical, andreligious experiences, SPF will be atthe center of a resurgent India andan Asian community that is nowwell on its way to restoring the pre-eminent position in the global scenethat it enjoyed prior to the eigh-teenth century.

tion and removal of nontariff barri-ers, the Indian economy has becomeinextricably integrated with theglobal economy. As figure 3 shows,India is now far more open, with itscurrent external balance accountingfor as much as 36% of GDP, which ishigher than that of the UnitedStates. This economic openness andintegration with world markets hasprovided the much-needed opportu-nity and economic space for theIndian private sector to make thetransition to mass manufacturingand exploit economies of scale whileemerging as the next global produc-tion hub for Indian and foreignmultinationals.

The structural determinants dis-cussed above should enable India togenerate near–double digit eco-nomic growth in coming years anddecades. This will see India’s shareof world output rise from the cur-rent 1.8% (with a population shareof 17%) to more than 7%–8% in thenext two decades. In consequence,the country’s share of world trade,which is at the abysmally low levelof 0.8% at present, will alsoincrease to more than 5%. Theseestimates are neither arbitrary norinfeasible. A recent scenario exer-cise conducted jointly by CII andthe World Economic Forum usedrigorous econometric methods tocome up with these numbers andensure their feasibility and consis-tency.

With economic development andtransformation, the country willalso go through a social change.Indeed, it has already begun. Themodernization of a pluralistic,diverse, and multiethnic India isnow underway. The path chosen byour founding fathers, which is bestsuited to India’s heritage and cur-rent conditions, is that of a seculardemocracy that defines secularismas fullest freedom and respect forall faiths. This is a difficult path tofollow, and there are costs to beborne. But there is no alternative.India has to persist with this formof social transformation and strivefor a modern, economically devel-oped society rich in multiethnicityand cultural diversity. Given theenormity of the task, perhaps notundertaken anywhere else inhuman history, it requires the

fullest understanding andhelp from our friendsinternationally.

Fifty-eight years ago,Mahatma Gandhi showedthe world that freedomfrom colonial rule couldbe achieved without a vio-lent revolution. This ser-ved as a model for dozensof other colonies to ach-ieve their own indepen-dence. In the twenty-firstcentury, India can againprovide an example ofsuccessful modernizationof a pluralistic society using mar-ket-based economic practices oper-ating within the framework of a lib-eral parliamentary democracy. Butfor this success too, India, whilehaving to make its own destiny,will also benefit greatly from inter-national understanding and assis-tance.

The role of SPF

SPF can play a crucial role inassisting India to achieve its fullpotential and take its due place inthe world polity. SPF can help builda bridge between India and the restof Asia, thus balancing the existingbias within India toward Europeand the United States. India’s ownvalues and ethics conform closely tothose practiced all over Asia. So it isimportant that India contributes tothe historic task of evolving anAsian community that stretchesfrom Japan to the Persian Gulf.Such a community can become themost dynamic engine for global eco-nomic growth. SPF can also helpstrengthen India’s efforts for region-al cooperation in South Asiathrough its network. This will effec-tively supplement official efforts.

In addition, SPF can ensure thatthere is increasing interaction at alllevels among India, China, andJapan in coming years. To achieveglobal peace and prosperity, it iscrucial that these three Asian giantsexpand their common ground andimprove mutual understanding. SoSPF would do well to initiate pro-jects that bring opinion leaders anddecision makers from these threecountries to share forums andexchange experiences, learn from

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Dr. Rajib Kumar joined the Confedera-tion of Indian Industry (CII) as its chiefeconomist in August 2004. Prior to joiningthe CII, he had worked in Asian Develop-ment Bank for nearly ten years as its prin-cipal economist. Dr. Kumar had earlierworked as economic adviser in the IndianMinistry of Finance 1992–95, and profes-sor at Indian Institute of Foreign Trade1987–89. He worked in ICRIER, a NewDelhi based think tank 1982–87. He waseducated at Lucknow University andOxford University where he completedhis Ph.D. in Economics in 1982. As headof CII’s Economics Department, his focusis also to interact with government indeveloping a positive policy environmentfor industry and assisting industry tostrengthen its competitiveness.

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Forum on Corporate Supervision andManagement and Audit Efficiency,held in Beijing in December 2004.People responsible for internal audit-ing at Japanese corporations wereinvited to make presentations to the150 or so representatives of China’sState-owned Assets Supervision andAdministration Commission andmajor state-owned enterprises takingpart in the conference.

A 16-member delegation of execu-tives from the State-owned AssetsSupervision and AdministrationCommission and major state-ownedenterprises and representatives ofCAIFC visited Japan May 22–28,2005. Focusing on internal auditing,risk management, and privatization,the group toured major Japanese cor-porations, including NTT, East JapanRailway, Nippon Steel, Toyota Motor,and Matsushita Electric Industrial.The delegates exchanged views withexecutives and managers, as well asspecialists in internal auditing andlegal compliance, thereby deepeningtheir understanding of the organiza-tional roles of the auditing, legalaffairs, and compliance arms ofJapanese corporations and the inde-pendence of internal auditing.

The delegates also heard a lectureon privatization and public-privateprojects from a Chinese researcherteaching at a Japanese university. Thisgave the group an opportunity toengage in discussion from a differentangle from that provided by businesspeople. Partly because some Chinesestate-owned enterprises are consider-ing privatization, the subjects of theprocess of privatization and therestructuring of Japanese public cor-porations elicited especially lively dis-cussion.

Japan Visit Program for City May-ors

While China’s shift from being“the factory of the world” to being“the market of the world” is in the

Almost 16 years of activities

The Sasakawa Japan-China Friend-ship Fund was established inDecember 1989, with the aim of pro-moting lasting peace and under-standing between Japan and China.Since then the Fund has undertakenalmost 250 projects (both grant pro-jects and self-operated projects) insuch areas as human resource devel-opment, people exchange, research,and conferences. For the past fiveyears, the policy thrust of projectshas been the promotion of compre-hensive friendship and cooperation,making the most of a private-sectorstance, to build a balanced Japan-China relationship. With this inmind, a variety of projects have beendeveloped and implemented, withthe focus placed on the priorities ofthe moment from among the widearray of issues affecting the twocountries, including security, foreignpolicy, politics, economy, culture,society, history, the environment,and health care.

In the field of security in particu-lar, the Fund has been conductingongoing projects to facilitate fieldofficer–level exchange betweenChina’s People’s Liberation Armyand Japan’s Self-Defense Forces,making use of private-sector chan-nels, and to train high-quality Chi-nese interpreters familiar withdefense policy. Articles in pastnewsletters have discussed suchprojects in some detail, so this arti-cle will focus on projects in the fieldof the economy that are receivingparticular emphasis in fiscal 2005(April 2005–March 2006). TheChina Association for InternationalFriendly Contact (CAIFC) hasalready carried out the followingtwo grant projects this fiscal year.

A Study of Asset Management Prac-tices in State-Owned Enterprises

On July 21 this year, the Chinesegovernment announced that the yuanwas being revalued upward by 2%.This is seen as a bid to lessen tradefriction with the United States, butthere are also worries about the possi-ble negative impact on the exportindustries that have underpinnedChina’s 9%-plus economic growth.Meanwhile, Chinese businesses’maneuvers in overseas markets, suchas the purchase of IBM’s personal-computer unit by the computer mak-er Lenovo, a subsidiary of the state-owned enterprise Legend Holdings,and the failed bid by the state-ownedenterprise China National OffshoreOil Corp. to buy the U.S. oil and gascompany Unocal, have attractedattention not only in Japan butaround the world. It is believed thatsuch moves will continue followingthe revaluation of the yuan.

In contrast to this showy perfor-mance in the international arena, anumber of problems have yet to beresolved. Although businesses, espe-cially state-owned enterprises, havebeen exposed to stiff internationalcompetition since China’s accessionto the World Trade Organization,such problems as prevention of theselling of assets and inefficiencyremain. Recently, transactions forcedon and interference in listed firms bytheir state-owned parent corpora-tions have led to a string of scandals.Typical examples are the arrests ofexecutives of a major color televisionmaker on suspicion of ordering themisappropriation of corporate fundsand the embellishment of corporateaccounts and the resignation of thepresident of a major Chinese phar-maceutical firm because of a businessscandal. Clearly, strengthening cor-porate governance and risk manage-ment of state-owned enterprises iscrucial if they are to be active playersin overseas markets.

CAIFC organized the Japan-China

By Izumi KanazawaDeputy Director The Sasakawa Japan-China FriendshipFund

Toward deeper Japan-China friendshipfrom a private-sector stanceCurrent activities of the Sasakawa Japan-China Friendship Fund

9

spotlight, there are worries thatexcessive investment could lead toa decline in domestic demand.Most experts, however, see redres-sing income disparities as China’sgreatest immediate challenge. Theyobserve that rising income dispari-ties between coastal and interiorregions in particular are fuelingdiscontent among farmers, whichis being exacerbated by uncon-trolled development and govern-ment corruption on the provinciallevel. They note that all this haseven triggered rural riots in someregions. Given these circum-stances, exchanges of views andpeople exchange with officials ofprovincial people’s governments topromote an accurate grasp of con-ditions in the interior and create aclimate conducive to foreigninvestment have become moreimportant than ever.

Every year since 1990 the Fund hasbrought groups of mayors and vice-mayors of provincial cities to Japanfor exchange on specific themes. TheFund has always ensured that thesegroups visited not only Tokyo butalso local governments, thus provid-ing a forum for discussion anddebate on common problems havingto do with local-government admin-istration.

In fiscal 2005, in view of theabove-mentioned circumstances,the project narrowed its focus toprovincial people’s governmentsfrom China’s interior. A total of 11people—8 mayors and vice-mayorsfrom the Xiangxi Tujia and MiaoAutonomous Prefecture, the InnerMongolia and Tibet AutonomousRegions, and Hunan, Hubei,Guizhou, and Liaoning Provincesand 3 representatives of CAIFC—visited Japan July 10–17. With theaim of enabling the group to learnfrom Japan’s advanced experienceof urban construction and regionalpromotion and apply the lessons toChinese municipal governments, itwas decided to make the themes ofthis year’s exchange program“regional promotion” and “encour-agement of investment,” both prior-ity issues for all the mayors andvice-mayors.

The group paid cour-tesy calls on ruling Lib-eral Democratic Party(LDP) politicians andthe senior vice-ministerof agriculture, forestry,and fisheries, met withyoung LDP members ofthe National Diet,received a briefing onlocal government by arepresentative of theRegional DevelopmentDivision of the Ministryof Internal Affairs andCommunications, con-ducted exchange withrepresentatives of the Japan Centerfor Regional Development, theTokyo Chamber of Commerce andIndustry, and the Japan-China Eco-nomic Association, and paid a cour-tesy call on a deputy governor ofOkayama Prefecture and heard alecture by a representative of theprefectural government. Throughthese activities the members of thegroup deepened their understand-ing of Japan’s politics and economy,and especially of the local-govern-ment system and conditions in localgovernments.

The participants were moststruck by their meetings with rep-resentatives of the Ministry ofInternal Affairs and Communica-tions and the Japan Center forRegional Development. The may-ors and vice-mayors found the lec-tures by representatives of thosebodies highly informative, sinceChina’s State Council has no orga-nization equivalent to Japan’s Min-istry of Internal Affairs and Com-munications to coordinate thepolicies and interests of the centralgovernment and local govern-ments, the harmful effects onprovincial people’s governments ofthe vertical compartmentalizationof the various organs of the StateCouncil are worse than the kinds ofabuses seen in Japan, and decen-tralization is less advanced than inJapan.

The lectures by representatives ofthe Tokyo Chamber of Commerceand Industry and the Japan-ChinaEconomic Association pointed out

that Japanese investment in Chinais concentrated on the easternseaboard, especially Shanghai, thatinvestment in interior regions isextremely limited, and that the rea-sons include the great disparitiesbetween coastal and interiorregions in infrastructure, humanresources, and Japanese logisticcosts. The mayors and vice-mayorsappeared to have gained a height-ened appreciation of the difficultiesof promoting investment fromJapan.

Because this fiscal year’s visit tar-geted mayors and vice-mayors fromChina’s interior, the participants’views on local government werefairly similar. This, it is believed,enabled a shared understandingregarding regional promotion andthe encouragement of investment.

It has long been observed that tiesbetween Japan and China are eco-nomically warm but politically cool.Last year China overtook the UnitedStates as Japan’s biggest trade part-ner, and economic links betweenJapan and China are becomingincreasingly close. Despite its ongo-ing dramatic economic growth,however, China faces many prob-lems. Through people exchange,human resource development, andother activities, the Fund will con-tinue to provide access to Japan’sknowledge and experience and sup-port a variety of initiatives toencourage information exchangeand interaction in the interest offriendship between Japan and Chi-na.

Chinese city mayors pose in front of the National Diet buildingwhile visiting Japan in July.

10

tools and recommendations to enhance the capacity ofthe sector as a whole.

An international facilitators’ workshop, “BuildingCivil Society Legitimacy and Accountability,” was heldin Montreal, Canada, May 27–28. Some 25 civil societyleaders and researchers from North America, LatinAmerica, Europe, the Middle East, Africa, and Asiatook part. To promote efficient discussion, a draft scop-ing analysis, which summarizes the background fac-tors, critical issues, and challenges of CSOs to addresslegitimacy and accountability, was used.

There were lively exchanges of views on such subjectsas the logical correlation between legitimacy andaccountability and the construction of organizationaland domain accountability. In addition, the partici-pants discussed the need to translate the English-lan-guage scoping analysis into Spanish and other lan-guages and the possibility of building regional CSOnetworks to ensure effective discussions among a vari-ety of people, especially in the regions that the partici-pants represented.

In parallel with work on finalizing the scoping analy-sis, a tool kit containing information on and analysis ofexisting tools, educational materials, and literature forCSOs addressing issues in related fields is being devel-oped. This is expected to be an effective resource forCSOs working on issues in related fields.

In recent years, with civil society organizations(CSOs) taking an active role in various areas ofpolicymaking, the way society views the legitima-

cy of these efforts has become a topic of concern.Toward a Normative Theory of Accountability for Civ-il Society Organizations, a project supported by SPFin fiscal 2001–2, found that if CSOs ensured trans-parency and improved accountability, the wider soci-ety would recognize their raison d’être and activitiesas legitimate. The project Civil Society Legitimacy,Transparency, and Accountability, supported by SPFsince fiscal 2004, is building on the findings of theearlier project. The grant recipient, Harvard Universi-ty’s Hauser Center for Nonprofit Organizations, isworking with the worldwide NGO network CIVICUSWorld Alliance for Citizen Participation to fosterdeeper awareness of CSOs’ legitimacy and account-ability on a theoretical level and to present practical

Nonprofit sector legitimacyand accountability

By Takahiro NanriProgram OfficerThe Sasakawa Peace Foundation

based on a firm grasp of the zeitgeist, their role includeshelping improve conditions in society and creating routesbridging civil society and funding entities. In addition, henoted, in order to select projects with future potentialthey need to hone their professional skills as POs.

In the panel discussion, coordinated by Masaaki Kusu-mi of the Japan Foundation Center, Makita and fouryoung POs talked about POs’ approach to issues in thecourse of their daily work, the professional skillsrequired of them, and the role they can play in socialchange, relating some of their own experiences.

This seminar was the first of a series of three. Twomore are planned, one on the project’s findings (inSeptember) and one on management of grant projects(in November).

As one of the outcomes of the project Research onthe Role of Program Officers in GrantmakingSystems (fiscal 2003–5), The Insider’s Guide to

Grantmaking: How Foundations Find, Fund, andManage Effective Programs by Joel J. Orosz wastranslated into Japanese and published (Tokyo: AkashiShoten, 2005). Building on this, SPF, The NipponFoundation, and the Japan Foundation Center cospon-sored a training seminar, “Grantmaking and the Role ofProgram Officers,” in Tokyo on July 25. More than 100working-level foundation personnel and others attend-ed. An address by Associate Professor Toichi Makita ofObirin University, supervising editor of the Japaneseversion of the book, was followed by a panel discussionthat included the translators.

Makita presented an overview of the history of theprogram officer (PO), a profession that originated inU.S. private grantmaking foundations, and explainedthe role of POs. POs, he said, are empowered to takepart in decisions on grantmaking. In addition to provid-ing a clear-cut direction for grantmaking foundations

Training seminar for programofficers in grantmaking foun-dations

By Fumiko OkamotoResearch AssociateThe Sasakawa Peace Foundation

A scene from the training seminar "Grantmaking and the Role ofProgram Officers" held July 25 in Tokyo.

11

protest the nature of an armed uprising and provideda pretext for violent suppression. Twenty-three busi-nessmen arrested in the summer of 2004 on thegrounds that they belonged to an Islamic extremistgroup had been put on trial, and some believe theuprising was aimed at freeing them. These business-men had run factories employing several thousandlocal people. They had also aided local schoolsthrough the Islamic practice of charitable donationsknown as zakat. The government’s reason for electingthe hard-line response of indiscriminately firing ondemonstrators is still unknown.

End of the honeymoon with the United States

The conference also included reports on Azerbai-jan’s and Kazakhstan’s oil and natural gas exports.Although the five Central Asian countries started offat more or less the same economic level when theygained independence with the collapse of the SovietUnion, Kazakhstan alone has registered dramatic eco-nomic growth, thanks to opening oil and gas develop-ment to international oil capital (the majors). Withthe additional boost of rising oil prices, annual percapita gross domestic product has reached $2,700.This is in marked contrast to the annual GDP of $500or less of neighboring Kyrgyzstan and Uzbekistan.Economically, at least, the strong-arm regime of Pres-ident Nazarbayev of Kazakhstan has been successful.

U.S. forces’ intervention in Afghanistan and Iraqled to increased American involvement in CentralAsia and the South Caucasus, but after the Andijanincident Uzbekistan refused to grant an extensionto U.S. troops based there and began drawing closerto China and Russia. The honeymoon between theUnited States on the one hand and Central Asia andthe South Caucasus on the other is coming to anend, and the region’s geopolitical situation is set toundergo a major shift. Central Asian countries arereapproaching Russia and approaching China. Suchmoves may change the geopolitical and geoeconom-ic situation in Central Asia in the near future.

After the collapse of the Soviet Union, opportunitiesand challenges within the region for local researchersto meet for discussion and debate diminished drasti-cally. SPF’s cosponsoring an international conferencein these circumstances and providing a forum forintraregional confidence building and informal dia-logue is significant. Participants asked that a similarconference be held next fiscal year. The proceedingsof this year’s conference are to be published inEnglish.

A forum for local voices

As part of the Capacity Building for Developmentin Central Asia and Caucasus project, SPF and theKazakh analytical journal Exclusive cosponsored aninternational conference in Almaty, Kazakhstan,June 22–23. Since the 1991 collapse of the SovietUnion, Central Asian and South Caucasian countrieshave pursued their own nation-building paths. Somecountries are growing, thanks to income frompetroleum and natural gas resources; others arestruggling with high unemployment and sluggisheconomies or with political turmoil.

Some 60 specialists from Central Asian and SouthCaucasian countries (Kazakhstan, Kyrgyzstan, andUzbekistan in Central Asia; Armenia, Azerbaijan,and Georgia in the South Caucasus), Iran, Japan,Malaysia, Russia, Singapore, South Korea, the Unit-ed States, and other countries took part in the con-ference. Local researchers and NGOs deliveredreports on various regional problems, andresearchers from Russia, South Korea, and the Unit-ed States made presentations on such issues as bilat-eral, multilateral, and intraregional cooperation inrelation to Central Asia and the South Caucasus.

The truth about the Andijan uprising

Danil Kislov, chief editor of the Uzbek online newsagency Ferghana.ru, reported on the government’s sup-pression of the uprising in Andijan, a city in easternUzbekistan. On May 13 a large-scale antigovernmentuprising erupted in Andijan. An armed group stormedthe prison, releasing some 2,000 inmates, and 10,000or more people rallied in the city’s central square,demanding the resignation of President Karimov.

In response the government called in securityforces, and at least 500 people were killed. The gov-ernment claimed that Islamic fundamentalists werebehind the uprising, but Kislov pointed out thatthose taking part in the rally were not Islamicextremists but poor people seeking an ordinary life.Their lives are grim; the average monthly income inAndijan is $10–$20; $1 buys a pack of cigarettes,two loaves of bread, or 500 grams of meat.

The identity of the group that stormed the prisonis unclear. There are a number of conflicting theo-ries. The escape of political prisoners gave the

By Akira MatsunagaProgram OfficerThe Sasakawa Pan Asia Fund

Intraregional disparities and geopolitical changein Central Asia and the South CaucasusReport on an international conference on Central Asia and the South Caucasus

SPF Newsletter No. 46, FY 2005 Vol.2• Published: October 2005 by The Sasakawa Peace Foundation

• Publisher: Setsuya Tabuchi • Editor: Akinori Seki

©2005, The Sasakawa Peace Foundation

Tel: +81-3-6229-5400 Fax: +81-3-6229-5470

E-mail: spfpr@spf.or.jp URL: http://www.spf.org

THE SASAKAWA PEACE FOUNDATIONThe Nippon Foundation Bldg., 4th Fl., 1-2-2 Akasaka, Minato-ku,Tokyo107-8523 Japan

Please note: The views and opinions expressed in this newsletter are of the individual writers and do not necessarily reflect those of theSasakawa Peace Foundation.If you’d like to stop receiving SPF Voices or have a change of address, please contact us at: SPF Communications Department (E-mail:spfpr@spf.or.jp, FAX: +81-3-6229-5473)

• Central Asia at the End of the Transition — edited byBoris Rumer, published by M.E. Sharpe. Outcome of theCapacity Building for Development in Central Asia andCaucasus project. • AsiaViews — Inaugural issue of a monthly magazine pub-lished by a group comprising editors of leading publications

in four Southeast Asian countries as part of the project Sup-porting Journalism in Asia. Through the monthly maga-zine and a weekly online magazine (www.asiaviews.org),AsiaViews conveys information on Asia by Asians to theworld. Requests for subscriptions to the monthly magazineshould be directed to editor@AsiaViews.org.

S P F Publ i cat ions

F Y 2 0 0 5 Program Agenda (Projects approved September, 2005)

Project Name

Voices from West Asia : Promoting Dialogue and Mutual Effort withinand from the Region

Implementing Agency

Royal Scientific Society (Jordan)

Type

G

Year

1/2

Budget (¥)

5,800,000

Regular Projects

Note: G=Grant Project; SO=Self-Operated Project; C=Commissioned Project

Project Name

Civilizational Dialogues among India, Iran and Japan

Enhancing Agricultural Economics Research Capacity in Laos

Strengthening Macroeconomic Forecasting Capability in Azerbaijan

Searching for Peace in Sri Lanka: Exploring the Role of Non-govern-mental Actors in the Peace Process

Lines of Convergence: China, India, Japan and the future of Asia

Implementing Agency

The Sasakawa Peace Foundation

Faculty of Agriculture, National University of Laos (Laos)

Center for Economic and Business Research and Educa-tion, Khazar University (Azerbaijan)

Sewalanka Foundation (Sri Lanka)

Center for the Study of Developing Societies (India)

Type

SO

G

G

G

G

Year

1/2

1/3

1/3

1/2

1/2

Budget (¥)

10,000,000

4,900,000

8,100,000

7,600,000

6,900,000

The Sasakawa Pan Asia Fund

From the Ed i tor ’ s Desk

With the end of the September 11 general election, inwhich the ruling Liberal Democratic Party (LDP)chalked up a historic victory, I feel that this year’s longhot summer has also finally ended. I will not commenton the outcome of the election here, but I will say thatthe high degree of public interest clearly differentiatedthis election from others in recent times. During thecampaign I heard people saying they looked forward toelection day, and even young people who generally showlittle interest in politics talked about whether to vote forthe LDP or its major rival, the Democratic Party ofJapan, and other election-related topics. Voter turnout(for the electoral-district component of the election) was

7.65% higher than in the previous general election.Whatever the reason, the fact that this time people feltthat their votes would make a difference and that changewas in the air was, I think, a healthy shift.

As it moves toward its twentieth anniversary, inSeptember 2006, SPF heads into yet another period ofchange. Building on our record of the past 19 years ofactivities, we wish to accomplish change without losingsight of SPF’s guiding principle as an organization, toseek methods of improving society rather than seek toimprove society as such—in other words, that whichgives SPF its distinctive character. We will continue tostrive to make SPF a world-class foundation.

Akinori Seki