Yet Another Not-Japan Story Speaks to Sony Management Failure

A Monkey Cage blog post entitled “Little mention of Japan in coverage of Sony hack” states that “the focus is much different, now that Japan isn’t viewed as a rival.” We Japanese in our turn think of it largely as an American story involving a company that happens to be owned by a Japanese company. But surely more attention would have been paid to the Japan angle if there had been more coherence and synergy between Sony Pictures Entertainment and the rest of the Sony group? In fact, wasn’t that the whole idea when Sony acquired Columbia Pictures amid all the Japan bashing?

The omissions taken together are an unspoken indictment of Sony management’s behavior over the years. 

DPJ 2015: With Nagatsuma in, Left Also Represented in Representative Election

Former MHLW Minister Akira Nagstuma is now the de facto candidate representing the labor union/ex-SDP wing  of the DPJ left, most likely hurting Katsuya Okada in the first round vote. My no arithmetic, highly impressionistic guess now puts my money on a Goshi -Nagatsuma runoff that Hosono will easily win.

I’m mildly surprised to read that Renho has failed to secure the necessary 20 Diet member support to stand as a candidate. With its ranks depleted, shouldn’t the DPJ change the rules to make it easier to stand?

Election 2014: Abe Won/Lost Election…Yes? No? Whatever? Duh?

There’s some talk out there among people wondering whether Mr. Abe “won” or “lost” the December 14 lower house election. In the most tangible sense, he won, of course, because the coalition extended its supermajority by roughly two years, covering the next upper house election in 2016 and his hoped-for second three-year term as LDP president (which means prime minister), so that he can pass the baton to his LDP successor, who can call a snap election immediately after his appointment as prime minister close enough to the end of the lower house members’ term so that it will cause minimum distress among vulnerable first-term members. If that’s not a “win,” I don’t know what is.

Here’s an argument out there that says the LDP lost because it went into the election with 295 seats and came out with only 291. That’s a defendable argument, but there is a counterargument. The LDP won 294 out of the 480 available seats in the 2012 election and won 291 out of 475 in this election. That’s a drop from 61.25% to 61.13% of the seats available, representing the equivalent of a half-seat decline, essentially a coin toss. There’s more. Of the five prefectures that lost a third seat, the LDP made a clean sweep in both elections in Fukui, Tokushima, and Kochi, while losing the one seat that it had in Yamanashi (although the stealth LDP candidate won in both elections), and lost two out of the three that it had in Saga. Redistricting obviously hurt the LDP. Adjusted for the five-seat cut, the LDP most likely “won.” Of course that’s no reason for the LDP to rejoice. The LDP is losing out as the conservative boondock lose the demographics game. The many adjustments to accommodate the increasingly irate Supreme Court, if nothing else, may redistrict the LDP out existence, if Japan has not childlessnessed itself to extinction first. But that’s too distant in the future to concern Mr. Abe.

There’s a less meaningful argument that says that Mr. Abe “lost” because he did not meet the widespread expectation among chatterists that the LDP would actually register a gain. But we were only parroting what the media was saying. (yes, I, as a charter member of the chatterist, dutifully reported that the media reports were saying that the LDP would “take 300 or more seats”). Yes, so the media reports were wrong. So? The point is?

Of course I also made the point then that “any ‘mandate’ talk from the Abe administration and its opinionating followers will ring hollow. Komeito will make sure of that with regard to any attempts to push the markers further on collective self-defense. And nothing will have changed on the socio-economic agenda beyond the LDP promise to make good on consumption tax exceptions. And that decision technically has preceded the election.”

“Win”? “Lose”? What do those words even mean?

Election 2016 (oops): Keep an Eye on Saga Prefecture

The December 14 lower house election had no effect whatsoever on the nuclear power plant restarts, and the April unitary local elections won’t either, for the most part. But Saga Prefecture, which hosts the Genkai Nuclear Power Station, bears watching. Let me explain.

Of the five prefectures holding gubernatorial elections in the April unitary local election that host nuclear power plants, Hokkaido, Fukui, and Shimane will have highly popular pronuclear incumbents running for reelection, while one, Fukushima doesn’t count because the Fukushima Dai-ni power plants will not be restarted. By far the most interesting race is in Saga Prefecture since most of the conservative vote will be split between two pronuclear candidates, one supported by the LDP, the other by the agricultural cooperatives—remember that the Abe administration is not only pushing TPP but also directly challenging the Japan Agricultural Cooperative Association (JA)—and Professor Yukihiro Shimatani, an environmental engineer at Kyushu University, is standing for the antinuclear forces.

The antinuclear candidate looks like a long shot. He is a helicopter candidate with no discernable local ties running in a deeply conservative prefecture where the LDP currently holds 28 out of the 39 seats (including two vacancies) in the prefectural assembly. The Japan Communist Party (JCP), with just one incumbent but with considerable boots on the ground, will help, but will also limit Shimatani’s upside. The five seat Prefectural Citizens Network, a coalition of the Democratic Party of Japan (DPJ) and the Social Democratic Party (SDP), should provide some help from the junior-partner, antinuclear SDP, but that’s it. It would require a perfect storm where a charismatic Shimatani succeeds in convincing the voters that he is not a one-issue candidate while keeping nuclear power and its alternatives front and center of his campaign—and the pronuclear candidates neatly split the vote—for him to get elected. Still, it’s not implausible. And none of this would have become possible if the incumbent hadn’t resigned to run, successfully, in the December 14 lower house general election.

So keep an eye on the Saga gubernatorial...especially if you hold Kyushu Electric Power Company stock.

My Call: Okada Will Win the DPJ Representative Election

Katsuya Okada will win the January 18 DPJ Representative election. It’s not the best outcome for the DPJ—Goshi Hosono will lead a better charge in the April unitary local elections—but Okada has amassed too much credit with the local faithfuls over the years to lose.

Hosono is standing for election, and that is a good thing for the DPJ’s future.

Stratfor’s 2014 Forecasts Short on Geopolitics

The Stratfor 2014 forecasts missed out completely on the two easily greatest sequences of geopolitical events of the year in the Russia-Ukraine military conflict and the expansion of the war in Syria to Iraq. To quote:

“Germany and the European Union will try to maintain some influence in Ukraine through their support of opposition leaders like Vitali Klitschko, but Russia will maintain the upper hand in Ukraine overall.”

To call that an understatement would be the understatement of the year.

“Syria will remain the main proxy battlefield between Iran and Saudi Arabia.”

…mmm…

“A large and capable jihadist presence in Syria will encourage the slow rise of an indigenous jihadist movement in Lebanon.”

But not a mention of Iraq. In fact, Iraq only appears in the context of Turkey’s maneuverings.

And then there was India:

“As the Congress and the Bharatiya Janata Party square off in their decades long rivalry, the national elections are likely to illustrate the rising clout and popularity of local parties on the national level, reflecting growing frustration with the traditional duopoly of India's national politics.”

Well, the Indian electorate did demonstrate its “frustration with the traditional duopoly,” just not in the way that Stratfor envisioned.

In all fairness, nobody that I’m aware of predicted anything like the first two sequences—discontinuities are hard to foresee—and most people were surprised by the magnitude of the BJP’s victory under Narendra Modi.

Will the “Abenomics” Corporate Tax Reduction Discourage Risk-Taking and R&D?

Media reports tell us that the Abe administration and the LDP Tax Council have agreed on a two-stage 2.51 and 3.5 pp reduction of the effective corporate tax rate from the current 35.64% to 33.13% to 29-30%. The stated objective is to stimulate investment by bringing the rate closer to the lower rates prevailing in South Korea, Singapore, China and the like. The reduction will be largely offset by measures designed to increase taxes on corporations.

I have misgivings about this.

First, to the extent that the reduction is offset by an increase, the effective corporate tax rate remains the same. The tax burden is merely being shifted among corporations.

Second, the offset, at least in the first stage, will be achieved by the following means:

(1)   Increasing the corporation business tax. The corporation business tax is a prefectural corporate income tax. In the case of a corporation with paid-in capital of more than 100 million yen, part of the tax is assessed on a composite of value-added (wages, net interest paid, net rent paid, and annual profit) and equity (paid in capital plus capital reserves).

(2)   Reducing loss carryovers. The current maximum carryover is nine years. The media reports do not give any details.

(3)   Reducing R&D tax benefits.

(4)   Increasing taxation on dividends between family corporations.

Measures (1) and (2) will punish corporations that incur losses. In principle, this will discourage risk-taking. Measure (3) will also discourage risk-taking and specifically reduce incentives on activities that lead to innovation. Measure (4) does not appear to be inherently discouraging for risk-taking behavior, but it will be a constraint on managing corporate finances.

So the “reduction” of the effective corporate tax rate, at least in the first stage, turns out to consist largely of a shift in the tax burden that discourages risk-taking activities and R&D. Doesn’t that run counter to the very purpose of Abenomics?

The Sony Hack Revisited

Embarrassing as it is to reach a wide public only to be proven wrong by subsequent facts, I am happy that the movie Interview is being streamed online and shown in theaters. Specifically, my guess that there were further disclosures at stake was proven wrong. But then, so was President Obama, if the Sony Pictures Entertainment CEO is to be believed. The Japanese media appears to credit Mr. Obama and other critics of the initial decision to cancel the nationwide release in forcing Sony Pictures to reconsider. Now this fails to address the CEO’s near-immediate claim following Mr. Obama’s comment that Sony Pictures only cancelled because the theater chain had pulled out (after Sony Pictures, reasonably, released them from the original commitments) and was looking for other means to release it.

But I do stand by the criticism implicit in my comment: “I wonder if [President Obama] isn’t secretly relieved that they didn’t talk to him.”

Election 2016: Yes, I Said It. No, You Don’t Have to Read It

My money is on a last-minute (albeit a year before the 2016 House of Councilors election) compromise on a near-de minimus set of changes that they hope will be enough to keep the Supreme Court from going ape and declaring the whole event null and void. Based on that premise…

The coalition as it currently stands will have 59 seats (including the nominally independent HoC President’s) up for reelection in 2016, with the other 76 seats safe until the 2019 election. This means that it must win 46 for an absolute majority, while 103 will give is a 2/3rds supermajority that would give it the bicameral power to send a constitutional amendment to a national referendum. The coalition’s actual take in 2016 should fall somewhere in the 60-76 range, which means that it will need another 27-43 for a supermajority. What is the arithmetic for that?

The Party for Future Generations (PFG) will support the kind of amendment that Mr. Abe would like to see, but it only has 7 votes, 2 of which will be up for grabs in 2016. Its 2014 HoR collapse suggests that it will face an uphill battle then, but let’s be generous and give it a 5-7 post-election range. The coalition still needs 22-38 for a supermajority. Mr. Hashimoto’s JIP may also look more favorably on a constitutional amendment to Mr. Abe’s liking, although such prospects diminished somewhat after Mr. Hashimoto ditched Shintaro Ishihara and his friends and merged with the more opposition-minded wing of the now-defunct Your Party. In any case, JIP has 11 seats, of which 6 have terms that run to 2019. Could it pick up 16 (22 minus 6) seats, the minimum required to make up a supermajority? That is not implausible, since the JIP took 15.72% of the regional proportional representation votes in the 2014 HoR election, even as the DPJ won 17 seats in the 2013 HoC election with only 13.40% of the national proportional representation votes.

Although the numbers will change a bit even under my de minimus assumption, securing votes for putting a constitutional amendment to Mr. Abe’s liking to a national referendum appears to be within reach…but only barely, for the following reasons.

First, it appears unlikely that the ruling coalition will hit the high end of the 60-76 range. One reason that the LDP did so well in the 2013 election was that there were three politically significant parties (plus the eternal voice of dissent JCP) competing for votes. Now, one of them is gone, and the remaining two at least managed to avoid putting up competing candidates in most single-seat districts in the 2014 HoR election. Other things being equal, this boosts the hopes of the opposition in the single-seat election prefectures, where the opposition—more specifically the DPJ—fared so poorly.

Second, other thing are more likely to be unequal than not, and to the opposition’s favor. It was the DPJ and JIP who were able to capitalize on Your Party’s collapse, while the LDP and Komeito lost out if the 2013 and 2014 party-line voting by the electorate is to be believed. The Abe administration has an upside—the economy could soar, or Mr. Abe could benefit from a really-around effect in the case of a crisis for which the public does not hold him accountable—but it also has a downside—any number of mishaps, plus an economic downturn/anemic recovery. Plus, there is the worrying, slow but steady decline in public support for his cabinet.

Third, the LDP has vastly more seats in HoC than any other party. This means that blame for what are likely to be blatant efforts to protect incumbents will largely fall on the LDP. The opposition parties by contrast will be able to push dramatically anti-incumbent reform, safe in the knowledge that it will hurt them more than it hurts you.

Fourth, even if the coalition and its potential constitutional amendment comrade-in-arms prevail against all odds, there is still the matter of the Komeito/Sokagakkai religio-political complex to consider. Does anyone think that Mr. Abe can make nice with PFG and JIP on constitutional amendment and expect Komeito to go along with it?

Fifth and finally, there is the matter of the national referendum by an electorate in which a healthy plurality oppose the principle of “collective self-defense,” if not its specifics.

It all depends, of course. If there is a sweeping change in sentiment that swings the public mood in Mr. Abe’s favor, now that’s totally different situation.

The ball, actually is in China’s court.

	2010 HoC Election (57.92%)			2013 HoC Election (52.61%)			2014 HoR Election (52.66%)
	NPR Votes	%	Seats	NPR Votes	%	Seats	RPR Votes	%	Seats
LDP	14,071,671	24.07	51	18,460,335	34.68	65	17,658,916	33.11	291
Komeito	7,639,433	13.07	9	7,568,082	14.22	11	7,314,236	13.71	35
Sum	21,711,104	33.27	60	26,028,417	48.90	76	24,973,152	46.82	326
DPJ	18,450,139	31.56	44	7,134,215	13.40	17	9,775,991	18.33	73
JRP/JIP				6,355,300	11.94	8	8,382,699	15.72	41
Your Party	7,943,649	13.59	10	4,755,161	8.93	8
JCP	3,563,557	6.10	3	5,154,055	9.68	8	6,062,962	11.37	21
others	6,732,359	11.53	4	3,802,466	7.14	4	4,139,643	7.76	14
Sum	36,689,704	62.82	61	27,201,197	51.10	45	28,361,295	53.18	149
Total	58,400,808	100.00	121	53,229,615	100.00	121	53,334,447	100.00	475

Does TPP Really Matter to Agricultural Reform, and Vice Versa?

Some people say that Japan will find it difficult if not impossible to sign on to TPP because it will be difficult to proceed with the requisite agricultural reform against the powerful agricultural lobby, while others think otherwise. These two schools of thought led to very different interpretations of the significance of the lower house general election. The former saw it as yet another complication for TPP because of the LDP’s reliance on the agricultural vote, while the latter are now pointing to the extra two years that the ruling coalition has secured and the lower house supermajority that it retained and claiming that this will make it easier for the Abe administration to secure a TPP agreement. These two opinions appear to be hard to reconcile, if not completely mutually exclusive. But what if the underlying assumption of a powerful link between TPP and agricultural reform does not hold much water?

The main problem with Japanese agriculture is rice. The holdings are too small, the farmers are too old, the product is too expensive (despite massive subsidies), and consumption is in perpetual decline. Fruits and vegetables have been doing just fine despite the low, largely single-digit, tariffs on imports, even when the yen hovered in the low 80s to the dollar. Meat and dairy products also pose problems, but the number of producers is much smaller and geographically concentrated. As for meat, the actual tariffs on beef and pork imports are currently much lower than the nominal headline rates because of the dipping yen.

The key element of the government’s reform efforts appears to be taking power away from the national association cooperatives association—Zenchu—and encouraging local initiatives. A special economic zone may or may not make significant changes to composition of agricultural committees there, which may make decisions regarding permission for the sale and other changes regarding agricultural land sales less arbitrary. The hope is that any successful changes will spread to other regions. But these are trivial changes compared to the inheritance and tax laws and the restrictions on agricultural corporations that keep agricultural land in the hands of aging owners who in many cases are rice farmers in name only. Moreover, much of the subsidies used to encourage farmers to shift away from rice will be directed toward animal feed, consisting largely of—rice!

Unfortunately, TPP is likely to do little to push that reform process, even in the limited form that the Abe administration appears to be proceeding with. Rice is not the main focus for the United States, which is likely to be satisfied with minor adjustments, including a minimum import carve-out.

How about meat? With only Yomiuri sticking with its what seems to have been a premature diagnosis that the Japan-US deal was “effectively concluded,” it is likely that the two sides are still at odds with regard to the actual tariff rates that will be applied and, more importantly, the safeguard mechanism that will kick in when imports surge. But the bottom line has been drawn by the Japan-Australia FTA. The United States will get a better deal than that, at which point it is likely that Canada and New Zealand secures similar deals and Australia has its bilateral deal upgraded. The result is that each exporter will have a relatively stable portion of the Japanese market carved out at a very low tariff rate with the remainder coming in at higher rates depending on the actual import prices. The Japanese government will make up with direct income subsidies or other fiscal means for losses incurred by cattle owners despite the eventual safeguard mechanism.

I have no feel for what is going to happen to dairy farmers. Consolidation is likely to be a major part of the remedy for TPP, but that will merely hasten a process that has been going on for decades without any significant policy push from the national government. Here again, fiscal nostrums appear to be in store within a TPP environment.

To sum up, TPP is unlikely to have a significant impact on the Third-Arrow reform process, which so far does not appear to be addressing the main challenges facing Japanese agriculture.

I’ve Responded to the Remainder of Your Comments in December

If you have any questions, remember, my email address is one click away, on my profile page. Note also that I will only respond to anonymous comments if they are compelling.

Looking Back: MIGA Talk 2014 Addendum Addendum

Japanese translation of my self-report card now up on the MIGA website.

What If the Hackers Were Trying to Kill Two Birds with One Stone?

Most real hackers must be anarchists by nature, not totalitarianism/authoritarianism supporters. As such, anyone this side of Edward Snowden should have little sympathy for grossly overweight dynasty heads, much less suck up to authoritarian/totalitarian regimes. So what if the whole cyberattack had been engineered to inflict maximum damage on both the United States and North Korea? If that is true, then the North Korean demand for a joint UN-sponsored investigation would be a desperate plea from a beleaguered Kim dynasty to absolve itself of an existential accusation. For once, it may be telling the truth.

Reminds me of Saddam Hussein’s truthful claim that Iraq did not have nuclear weapons Program.

Re Comment on “Election 2014: The DPJ and JIP Need to Get Their Acts Together—Literally”

I’ve begun going through the comments, starting with “Election 2014: The DPJ and JIP Need to Get Their Acts Together—Literally.”

My Thoughts around the Sony Pictures Entertainment Hacking

I was asked a couple of questions regarding the hacking of Sony Pictures Entertainment allegedly by North Korea. First, why was so little attention being paid to the incident? Second, what did I make of President Obama’s criticism of Sony?  Mr. Obama had said that Sony had “made a mistake” and “I wish [the Sony Pictures executives] had spoken to me first. ... We cannot have a society in which some dictator someplace can start imposing censorship.” The press conference itself was entertainingly reported here. The following are my answers, edited to fit the blog format.

1.      I suspect that the hacking and the repercussions are being given minimal attention in Japan because it is being seen as a US incident affecting Sony's US business (Sony Pictures Entertainment) and specifically its management and employees there, not much different from, say, Warner Bros. getting hacked. The response would have been greater if this had been a case of a major Japanese filmmaker being hacked. The fact that it's a mix of crime (national news), business and cybersecurity issues paying out overseas (albeit in the well-covered USA) likely makes it that much more difficult to cover unless it's a big enough story to warrant multiple-department cooperation.

2.      I am somewhat hesitant to comment on President Obama’s crfiticism because this is not much of a Japan story in the way that a Toyota Motor North America story would be. (To reinforce the point that I made before, Sony Pictures is an American company in an iconic American industry that just happens to be owned by a well-known Japanese company, while Toyota is a global brand that draws a significant portion of its cachet from its Japanese roots.) President Obama’s reaction has even less to do with Japan, if such a thing is possible, since it occurs within the context of a still largely US initiative on cybersecurity. That said…

Blaming the theaters is a lame excuse that will only be believed if Sony Pictures releases the movie online, as well as to theaters that are willing to show it. But I get it. There’s a huge trove of proprietary data that could be released, causing far greater damage to Sony Pictures than the financial loss that it is eating, and Sony Pictures is a private-sector, for-profit undertaking. And what could Obama have offered that would have made the Sony Pictures executives change their minds? I wonder if he isn’t secretly relieved that they didn’t talk to him.

This obviously compromises the entertainment industry. Filmmakers will think twice before maltreating North Korean, Chinese and Russian leaders and their ilk, touchy leaders of authoritarian/totalitarian countries endowed with significant cyberwar capacities. But of course self-censorship has always been a staple of the entertainment industry. It will become even more obvious as businesses look increasingly to the global market. Compared to the way the movie industry is beginning to accommodate Chinese sensibilities for example, deep-sixing a film about which it has become fashionable to make jokes regarding its supposed mediocrity is trivial. After all, we will surely still have the Comedy Central channel and Saturday Night Live making fun of the fleshy leader of the hermit kingdom.

As a more general matter, as more and more terabytes leak out to cyberspace to remain there forever and a day, I predict that we will become desensitized, coarser, more shameless. Eventually, we will all be Paris Hiltons, shrugging off indiscretions and embarrassments—indeed, that word will become obsolete—as mere trifles, as conversations such as, “Did you see the picture of the President’s dick,” “The ‘ladyfinger,’ you mean? Meh” will become routine.