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Elon Musk’s Economics 101 Course For Japan

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History may show that Elon Musk did more to pave the way toward a more vibrant economy for Japan than the country’s longest serving prime minister.

In the weeks after Shinzo Abe stepped down on Sept. 16, economists came to grips with how little had changed in his 2,821 days in office. Lots of government stimulus sugar highs and incremental tweaks, but no structural reform Big Bang to boost competitiveness and innovation.

Yet two epochal Musk-related events on Abe’s watch are only now getting Tokyo’s attention. One was that day in 2014 when Tesla billionaire Musk called Panasonic headquarters. The other came this summer when Tesla blew past Toyota to become the world’s most valuable automaker. 

Back in 2014, Japan Inc. icons like Panasonic were rather adrift as South Korea and China made plans for global tech dominance. Yet when Musk was setting up his $5 billion battery Gigafactory in the Nevada desert, Panasonic was his first call.

Wisely, Musk tapped into the 102-year-old company’s storied history of invention and innovation in appliances, lighting, radios, televisions and, especially, its research and development on cutting-edge rechargeable batteries.

Singlehandedly, Musk reminded Panasonic and peers that the real gold rush of the decade ahead isn’t making cars, but in the carbon-neutral power sources that fuel their engines. The hope was that Abe, as part of his multifaceted effort to shift Japan’s economy into a higher gear, would get on board. That meant moving beyond a decades-long obsession with nuclear power and pivoting tax and regulatory incentives toward renewables. 

It never happened. Abe left the premiership every bit as much in the nuclear industry’s enthrall as he entered it in 2012. Enter Abe’s successor, Yoshihide Suga, with a new plan Abe refused to back: making Japan carbon neutral

Suga, wisely, is tying this push for innovation in the renewables space with his desire to restore Tokyo to its rightful place as a major global financial center. It’s not enough, after all, to create a playground for financiers to trade wealth. Japan needs to create new wealth by generating big initial public offerings of the kind hitting markets in Hong Kong and Shanghai.

The renewables space is the ideal one for Japan to target with tax incentives, looser regulations and even government-backed venture capital schemes. Devoid of fossil fuels, Japan has a long and enviable track record of energy conservation. It also has the wherewithal not just to generate power via solar, wind and geothermal resources but build the most profitable industry Japan has ever known.

Musk’s Tesla juggernaut has harnessed Japan Inc.’s battery process to great effect, as Tesla’s shares relative to Toyota’s demonstrate. There’s talk of Tesla now going its own way and making batteries in-house.

Yet it’s now time Japan reminded the globe it’s an innovation powerhouse. As the nation’s newish prime minister puts it: “The Suga administration will seek to make a virtuous cycle between the economy and the environment. We will put all possible efforts into creating a green society.”

If only his predecessor had. Abe actually had two chances to extract Japan from the grip of the nuclear lobby. His 2006-2007 premiership was an ideal moment to devise a pro-growth energy policy shift. That first stint as leader followed Junichiro Koizumi’s five-year reform drive to recalibrate growth engines.

Abe ignored economic retooling that time around. When he returned for Abe 2.0 in 2012, he could’ve easily ridden a wave of public discontent following the nuclear crisis in Fukushima. A giant March 2011 earthquake led to the globe’s worst radiation leak since Chernobyl just 239 kilometers away from Tokyo.

But the government went the other way. Abe 2.0’s seven-plus years in power focused on restarting reactors. He made selling nuclear technology and coal-fired plants around the world a priority. For all the talk of “Abenomics” remaking the economy, a push on renewable energy was but an afterthought.

Right out of the gate, Suga is trying to make up for the drift of the Abe years. Yet he must raise his ambitions, and fast. 

As of now, renewables must account for half of Japan’s energy mix by 2030. That means the nation must limit coal and gas use to guide an orderly transition consistent with Tokyo doing its part to keep global warming to 1.5 degrees Celsius.

Suga should aim for carbon neutrality not by 2050 but 2030, a transition that is quite doable. Helen Mountford of the World Resources Institute agrees, noting Tokyo must “set a much bolder” plan for the next decade. Japan also needs a clear roadmap to get there. Suga has yet to detail one.

This isn’t just about environmental sustainability but economic relevance. As China rises, South Korea catches up and Indonesia, Vietnam and others raise tech ambitions, Japan Inc. is finding so much of what it’s good at being commoditized in real time. Korea alone has Japan Inc. feeling deeply insecure as Asia’s No. 4 economy competes in cars, electronics, robots, ships and popular entertainment. K-pop bands like BTS and Blackpink are going global in ways J-pop never did.

Then there’s what’s afoot in China. President Xi Jinping’s “Made in China 2025” production aims to dominate the future of electric vehicles, automation, semiconductors, biotechnology, you name it. Japan Inc.’s best chance of success is devising a “Powered by Japan 2025” rejoinder and cleaning up economically.

Suga’s push reminds us that inventing and commercializing ways for China, India, Indonesia, the Philippines, Vietnam and elsewhere to grow rapidly without choking is where the real money is going forward. As such, Japan Inc. may be getting an inadvertent assist from Tesla’s success—and shift its economy into a higher gear.