Industrial Clusters: from Finland to Hokkaido to Moldova

Due to rapid changes in the global economy and the phenomenon of the aging society, the Japanese public budget is shrinking, at least in comparison with OECD countries. Today, Hokkaido’s share in the national GDP is 4%, while it absorbs 10% of the national public works budget. A negative outcome of the income-distribution approach is the high level of dependency of the region on central government grants and subsidies. Many professionals, guided by common sense and aware of the macroeconomic trends, question the sustainability of the regional development approach used in Japan, particularly in Hokkaido. They think that it is time for the Hokkaido region to learn to stand on its own feet. So, if the current approach is not sustainable, what is the future of Hokkaido?

Interestingly enough, this question was raised by the academic and business community in Hokkaido, who want their region to become more economically active and competitive both domestically and globally. In their quest for answers and solutions, they went to Finland where they studied the industrial cluster approach. As a result, the NOASTEC Foundation – a public-private partnership – was created in 1998, after a two-year planning effort led by the business people, academics and government officials. Since its establishment, its main task has been to encourage and facilitate cluster formation through provision of valuable information and networks to existing and aspiring entrepreneurs. As of today, NOASTEC’s membership consists of 83 businesses active in three broad industries: food, lifestyle and tourism. The most rapid development (e.g. total sales) occurred in the food industry.

From all economic development practices and policies that I learned about in Japan, this is by far the most suitable, straightforward and promising one for Moldova. There is a wide-spread agreement that three industries have significant economic potential in Moldova: wine-making, textile and informational technologies (IT). In my view, the wine-making should be developed as part of a broader processing food industry to become the basis of Moldovan export. At the same time, the IT industry should receive high priority as the basis for the emerging knowledge industry era. Development of the IT industry will help Moldova secure a niche in the rapidly expanding knowledge-based economy. (By the way, Richard Florida, in his book “The Rise of the Creative Class” identifies technology, talent and tolerance to be the necessary pre-requisites for booming IT-related industries) Finally, after identifying the industries with the greatest economic potential, there is a need for a NOASTEC-like organization which will support the formation and operation of specific clusters throughout the entire territory of Moldova. Hokkaido can offer excellent lessons in food industry clusters, Finland – in mobile communication and medical research clusters, Ireland – in IT clusters, Denmark – in dairy industry clusters. The experience and resources are out there! All we have to do is bring, and apply them creatively in Moldova.

A Tour through Central Japan

Back from a four-day trip in the central part of Japan, including Osaka, Kyoto, Kobe, Nagoya and Toyota cities. With the Jauntlet (on the left) you can make the same trip, virtually, and see the places I visited, since they say that a picture is worth a thousand words. These destinations were chosen for a particular reason: each embodies one aspect of development efforts in Japan. Osaka is the 2nd largest city in Japan. Kyoto has a priceless historical and cultural heritage, and is one of the most popular tourist attractions. The government approach of preserving and maintaining these beautiful cultural and natural landscapes are worth a praise. Needless to say, I enjoyed wondering through the streets of historic Kyoto the most, although the time was so short. Kobe suffered greatly from a 7.3 degree earthquake in 1995, but the physical traces of this event have been completely removed. It is now a very modern city. The Japanese learned valuable lessons from that experience, and are doing a lot to prepare for future disasters and mitigate their city's vulnerability. Nagoya is the 4th largest city (followed by Sapporo). It is home to the UN Center for Regional Development, and to the world-known Noritake Ceramic Factory. The city, as well as the entire region, promotes industrial tourism. The Noritake Factory and the Toyota Motor Corporation are two sites that we visited, and I personally found such tourism enjoyable, impressive and memorable. If I ever get a chance to buy a car, it will most likely be a Toyota.

Japan is Rethinking its Cities

Like many developed countries, Japan faces an important challenge – a rapidly aging society, which is caused by a low birth rate. In fact, Japan’s population is aging the fastest, followed by that of Germany, France, England and USA. In 2005, Japan’s population was about 127 million, and it is expected that in 2050, it will decrease by as much as 50 million, with 65-and-older population representing 35% . Young people postpone marriage, and think twice before having children. Population decrease usually leads to lower economic growth, lower public investment and services, high social assistance and health costs due to a growing number of elderly people, high tax burden on the working citizens, decreasing vitality of local communities, etc. How is Japan’s government approaching this issue? Instead of increasing its reliance on immigration like other developed countries, (Canada, US) Japan is testing alternatives ways of dealing with these demographic changes. In fact, the Japanese central government encourages sub-national governments to design the most appropriate solutions for individual local communities. National and regional development plans are being reviewed so as to adjust to these tendencies. New city planning techniques reflect this reorientation. For example, compact cities aim to control sprawl by concentrating all vital city functions in a clearly defined and well-developed city center. Key features of a compact city are: reduced environmental burden, aggregated city functions in neighborhoods, increased habitability, elimination of traffic congestion, organic transportation systems and improved disaster prevention systems.

Compact cities sound good. We'll have to see how well they work in Japan, and maybe it will be be worthwhile replicating them in other parts of the world.

Understanding Regional Development

Our group had just returned from a field trip in Hokkaido countryside. In the course of four days, we visited Kushiro and Obihiro cities, as well as many other interesting locations and sites. You can find details on this field trip, as well as some pictures on the left, on Jauntlet.

In the evenings, I’ve been reading a very good book on regional development, which I’m happy to have discovered, entitled Regional Development in Third World Countries: Paradigms and Operational Principles. The author, Haruo Nagamine, was a distinguished Japanese development professional and trainer, who attempted to understand and approach the challenge of achieving balanced prosperity and well-being in the developing countries. Although his work and research was focused on South Asian countries, I find his analysis, conclusions and recommendations relevant to current realities in Moldova – a low-income country in transition. Here is Nagamine’s list of constraints that developing countries have to consider (and overcome) in designing and implementing their regional development policies:

Economic constraints
Poverty
Disparity
Stagnant manufacturing industries
Low level of technology
Insufficient employment opportunities
Shortage in basic means of production

Social Constraints
High population growth (not the case in Moldova)
Inadequate provision of basic needs
Inappropriate school curriculum
Inflated material desires

Physical Constraints
Concentration in primate cities
Poor infrastructure
Inadequate maintenance and operation of infrastructure
Deforestation

Constraints in Development Administration and Finance
Ill-defined administrative responsibilities
Inadequate coordination among administrative bodies
Dependence of regional budgets on central governments (in Moldova, it is local governments)
Political system inimical to democratic representation (less applicable to Moldova)
Bottlenecks to community participation
Corruption
Promotion in civil service

General Constraints
Limited availability of information
Vicious cycles of entrenched constraints

Nagamine states that until now – that is in the past five-six decades – regional development policies of South Asian countries have not been very effective, and provides the reasons why. Why has it been so difficult for Japan’s neighboring Third World countries to replicate Japan’s success in regional development, particularly given Japan’s persistent and active mentorship? What can Japan and its ODA recipient government change in their approach of regional development? The lesson for Moldova is that planning and managing regional development should be approached in the most engaged, professional, disciplined, creative, and consistent way. Nagamine expressed this very well:

“Effectiveness of development planning largely depends on the leadership of the government and the willingness of people to act toward a common goal.”

A Formula for Good Agriculture

This past week, our group learned about agricultural policies and practices in Japan. Five decades ago, the Japanese government decided to make its northern region, Hokkaido, its main food supplier, and since then it has invested heavily in agriculture land improvement through large scale drainage, irrigation and fertility-enhancing projects. Since two thirds of Hokkaido’s 1.2 million hectares of cultivated land originally had a low level of productivity, the current high yield farmland has not come cheaply.

The national agricultural policies are being implemented at the regional and local levels via a network of Land Improvement Districts (LIDs) that manage quite sophisticated agricultural engineering and land conversion projects. Individual farmers who are land-owners are actively involved in LID associations, which ensures the participatory aspect of decision-making in agricultural policies. In fact, the staff of LIDs are ex-farmers. The projects are financed in the following way: 50-66 % - from central government, 17-30% from prefectures, 6-14 % from local government, and individual farmers contribute the remaining 5-15%.

Another component of Japanese agriculture are agricultural cooperatives, managed by agriculture professionals whose major objectives are to support farmers in all possible ways, foster cooperation and consensus among farmers, and promote governmental policies in agriculture. There are about 840 cooperatives in Japan, and around 120 in Hokkaido. Farmers make up the membership of these cooperatives, pay membership fees, participate in the decision-making process, and benefit from a wide range of services such as equipment rental, loans, whole-sale and retail networks, training, consulting, etc. In addition, these cooperatives are active political lobby groups.

In conclusion, the Japanese agricultural model follows a pretty straightforward formula:

Good agriculture = a clear governmental policy based on pre-defined national priorities + adequate financing + a strong and efficient institutional and administrative framework + well-organized, properly supported and politically-represented farmers.

This could be a perfectly applicable formula for agriculture development in Moldova, particularly because in the Soviet times, the first three components had been in use as well. Moreover, it is worth mentioning that Japan also faced the challenge of fragmented land (due to privatization). However, the agricultural cooperatives and LIDs are the solution to that problem, and a means to sustaining competitiveness of Japanese agricultural products.

Is the Non-governmental Sector a Reflection of the Government?

During my training, I do not hear much about non-governmental or third sector in Japan. When I ask about the participatory aspect of the decision-making process in the public sector, it seems like, besides governmental agencies, and government-affiliated institutions, the only other stakeholders are university professors and business (association) leaders. My understanding is that the government itself requests input from the academia and the business community (on economic development policies), and then makes the best-informed decisions which are subsequently followed by citizens and businesses. Excluding universities, it looks like the non-governmental sector is either weak or inexistent in Japan. Yet, the Japanese society is highly organized, democratic and developed.

In Moldova, development of the non-governmental sector has been highly encouraged, particularly by the donor community. Everyone has created or wants to establish a non-governmental organization. The focus is frequently on the non-governmental part rather than on organization part. As long as you are not with the government, you can be a hero! I think this attitude is responsible for today’s situation in which we have a weak government, weak opposition, and a weak civil society. None is good (visionary, professional, honest, creative) enough to do a proper job in any sector.

Moldova might want to look at Japan’s model: the government is in the center of decision-making, but for high-quality and informed decisions, it relies on the academic (scientific) and private sectors. Even in the case of the highly decentralized American society, all three sectors (public, non-profit and private) are moving (undoubtedly, with much more debate) in the same direction.

How Important is a Government?

The role of the Japanese government in shaping the country’s economy and ensuring a high level of development throughout the regions has been immense. I think Japan has been pretty fortunate in terms of its leadership and government, particularly after the II World War. In this sense, some countries are just luckier than others. I don’t mean to ignore other factors that contribute to a country’s well-being, such as the geopolitical situation, world economy, and culture. However, the quality of a government, almost always, makes the most significant difference.

In my opinion, the centralized Japanese government system works well because the central government has successfully maintained its authority, and has responsibly done its work. These, in turn, led to political stability that earned people’s trust and support. This allowed the central government to design, import, adjust, modify, implement various types of policies to secure both economic and social development of the country over the years. Why aren’t the Japanese questioning and debating their government’s policies very much? My guess is, perhaps, because their government has rarely let them down, and their trust has not been undermined. In my own experience, Japanese public officials that I’ve met have inspired trust. Not all of them can give you the ‘big picture’, but I always feel that they are very good at whatever their specific job is.

Moldova is the reverse of Japan. Almost nobody trusts or respects the government, which is totally understandable given its low performance, responsibility and accountability levels. Even now, when a certain level of political stability has been achieved, the political agenda of the Moldovan government is still rather vague. People are either indifferent towards, or afraid of government. None of these attitudes is very productive. In my view, the Moldovan government needs to earn people’s trust and support by being more transparent and result-oriented. People’s support of governmental policies might make running this country a more productive endeavor.

Development and Decentralization

In the last five decades, Hokkaido, one of Japan’s forty seven prefectures (second tier of government), has received a huge amount of funding for development from the central government. Development includes public works such as road improvement, ports, airports, railways, afforestation, housing, municipal services, agriculture, forestry and fisheries. In 2005, Hokkaido received USD 6.3 billion (10% of Japan’s public works budget), while it accounts for 4.4% of Japan’s population and 4% of national GDP. Over the years, Hokkaido has been perceived as extremely important in terms of national security (military, food) and consolidation, which has justified the high level of spending on its development from the national budget. The outcome of Japan’s development policy in Hokkaido today is a high level of well-maintained infrastructure. To me, everything looks brand new. In comparison, infrastructure in New York City and Paris looks rather worn out. Moreover, the Hokkaido prefecture has asked the central government to reduce the amount of public investment in Hokkaido because it can no longer afford its share (15-20%) in financing these projects.

These being the facts, the next question concerns how this huge amount of money is spent. Until recently (mid 90s), in Japan, the decision-making in the public sector had been highly centralized. The central government had once decided that Hokkaido was of high national interest, and since then it had managed and financed the entire endeavor. Basically, the top-down approach had been consistently used. The central government developed national and regional development plans, created implementation bodies, deconcentrated a part of spending authority to the regional level, and provided the bulk of resources. All capital investment projects were designed and decided upon by the central government with almost no input from the local governments or private sector. The negative outcome of such a policy – decreasing self-reliance of local communities, and lack of sustainability – has been duly acknowledged in Japan.

The current plan, the 6th-term Hokkaido Regional Development Plan (1998-2007), includes a bottom-up approach, and is said to reflect the shift from the public sector to the private sector, and from the central government to the local government. The local governments and public sector are encouraged to take greater responsibility for the sustainable development of their regions. In short, decentralization is on the agenda of the Japanese government now. Although decentralization is a new approach for the Japanese, my bet is that they will successfully manage this process.

Moldova’s decentralization process started in the 90s, too. After 15 years of independence, the level of decentralization in Moldova is considered very low, despite continuous efforts, discussions and promises. Keeping in mind that decentralization is a means to a more efficient and sustainable development, rather than a goal in itself, I am wondering whether the failure of decentralization in Moldova is a consequence of erroneous understanding and planning of national development. In fact, which are the development objectives and priorities of Moldova? Or, a more difficult question: what are the national interests of Moldova?

Regional Development in the World and the Public Servant Profession

Today, our group met with the staff of the Hokkaido Regional Development Bureau, which is the local branch office of the Ministry of Land, Infrastructure and Transport. After listening to each participant make a presentation on regional development structures and processes in their countries (Indonesia, Phillipines, Myanmar, Sri Lanca, Tanzania and Macedonia), I made the following conclusions:

1. Each of these countries has some type of regional development policy with a corresponding legal and instititutional framework.


2. Regional development is a central government initiative & responsibility, and requires significant efforts and resources. Donors trust and prefer this approach.


3. Ensuring local participation is a challenge everywhere, even in Japan.

The work day ended nicely in a typical Japanese restaurant where, while enjoying sashimi (a typical Japanese dish of raw fish) and discussing public administration, it turned out that Moldova was the only country (of those represented) whose public servants did not have to take a professional examination before starting their jobs. While in the other countries a position in the government is prestigious and highly competitive, in Moldova a public servant is not even considered a distinct profession.

Japan is an Imperfect, yet Beautiful Country

The training course General Management for Regional Development and Planning will take place primarily in Sapporo, Hokkaido (the region in Japan that benefited from central government-designed development), although several study visits to other regions are scheduled as well. The 2-day orientation organized by the Japanese International Cooperation Agency (JICA) – the main implementation agency of Japan’s ODA – aimed to introduce us, the participants (public employees from Sri Lanka, Myanmar, Indonesia, Tanzania, Philippines, Macedonia and Moldova) to the Japanese education, economy, culture, society, politics and public administration. I found the brief lectures on each of these topics - well-organized and delivered in good English by university professors – very interesting. The following statements attempt to describe Japan of today, and capture its particularities:
- Education is perceived as key aspect in human development (almost100 % attendance rate in primary, secondary and high school, 50% of high school graduates get higher education).
- School year starts in April and ends in March.
- Cooperation and teamwork is highly valued and encouraged, while expressing one’s (different) opinion is not.
- Japanese people are not really religious. Zen Buddhism and Shintuism (each thing has its own god) are two main religions in Japan, and they peacefully coexist, often in the same household. Many Japanese celebrate Christmas as well, just because they find it enjoyable.
- The Japanese like small, exquisite, simple, nature-inspired and imperfect things. The find imperfection beautiful. God, nature and humans are imperfect, and the world is a collection of imperfect things.
- The communication style of Japanese is circular (they never say directly what they think), which is very different from the direct communication style of North Americans and Europeans. According to some research, North Americans talk 6 hours per day, while the Japanese – only 3 hours.
- The tea ceremony – chono-yu – is a very specific and traditional socializing event where people enjoy each other’s company in silence for hours.
- The Japanese society is ageing, the birthrate is dropping, and the youth prefer to live with their parents until marriage.
- Globalization challenges the Japanese salaryman prototype – the office worker who dedicates his life to the company for life-time employment. Moreover, the Japanese exemplary work ethics (dedication to company, own life sacrifice, long hours) leaves its toll on the Japanese workers' physical and mental health.
- The Japanese economy is declining, and the traditional ways of doing business – shikkai and keiretsu systems - are challenged by the global economy. Nevertheless, the SMEs – the backbone of the Japanese economy – are expected to regain Japan’s international competitiveness.
- The political and administrative systems in Japan have been molded on the British and North American parliamentary models after the World War II, retaining any political power from the Emperor, and promoting renunciation of war. The Prime-minister is elected by the bi-cameral legislature (Diet) which for the last forty years has been dominated by one Liberal Democratic Party (LDP).
- The inter-governmental relations are highly centralized, and prefectures and municipalities enjoy a 30% quasi-autonomy. Local governments receive all revenues from the central government, and have discretionary spending authority over only 30% of their budget.

The first message conveyed to me by the lecturers is that Japan is not a perfect country, which makes sense considering Zen principles. What is striking is that the Japanese are willing to openly admit it to themselves and us, their foreign guests from the very beginning. This openness generates reciprocity, trust and constructive dialogue. This might be the first lesson that Moldova (and not only) could learn from Japan: Ok, these are our problems…let’s analyze and quantify them…then agree on a solution…then work hard TOGETHER, and, as a result, things might improve.

A New Comparative Perspective for Moldova: Japan

Konnichiwa from Japan! Moldova is one of many countries receiving official development assistance (ODA) from a number of higher-income countries, such as US, Japan, EU, Canada, Sweden, Austria, Switzerland, etc. The philosophy behind ODA is that lower-income countries like Moldova need various types of assistance for their development, and the rich countries are willing to contribute. In past years, I developed an interest for and, gradually an understanding of, how ODA works from both perspectives: the donor country and the recipient country.

I am currently in Japan, representing the Moldovan government, and benefiting on behalf of my country from one of Japanese ODA programs, namely, a training on regional development and planning. This post opens a new series of articles on such topics like ODA policies and practices, Japanese experience and practices in regional and local development and planning as well as other public policies, and, of course, Japanese people, culture and society.

There is one major reason why I will bother to write about Japan and its development experience. By accepting this type of assistance, the Moldovan government acknowledged that there is something useful to learn from Japan. Similarly, by accepting to participate in this program, I made the commitment to disseminate and use in my work whatever I find interesting and applicable upon my return. So, as someone who believes in the participatory approach of the decision-making process, I want to share these things with the readers of this blog, welcoming your comments, suggestions and ideas. Arigato gozaimasu (thank you)!