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Hoped-for global public investment boom may offer road to nowhere



On the northern Japanese island of Hokkaido, the motorway from Honbetsu to Ashoro is engineered to the highest standards: fully separated intersections, a hard shoulder and stretches of dual carriageway for overtaking. All it lacks is vehicles.

Intended as the first stage of a highway reaching almost to the Sea of Okhotsk, the 13.2km stretch is used by about 1,300 vehicles a day, similar to a main road in Scotland’s Outer Hebrides.

The motorway marks the apex of Japan’s massive programme of public works in the 1990s and early 2000s — and as pressure mounts on other countries around the world to embark on major spending drives to combat the economic impact of coronavirus, it also offers a lesson in what can go wrong.

Last month the IMF urged advanced economies to spend big and quick on simple capital projects to boost demand and jobs, and then plan longer-term digital and green technology infrastructure to increase the future scope for growth. And governments should worry less about rising public debt, it said; higher growth would make it more sustainable.

It appears the message is being heard: US president-elect Joe Biden has pledged to “build, back, better” and the EU has promised “the largest stimulus package ever” with its planned €1.8tn budget and recovery fund.

But the lesson they should draw from Japan’s public spending is nuanced.

In the decade after the bursting of its financial bubble in 1990, Japan wrestled with sluggish demand and declining interest rates and fought back with public works.

Those projects left a legacy of concrete and easily-financed public debt — but they revived neither growth nor inflation.

“People thought there was a temporary fall in demand because of the bursting of the bubble and through economic stimulus they’d be able to get back to 5 per cent growth,” said Toshihiro Ihori, a professor at the National Graduate Institute for Policy Studies in Tokyo, and an expert on Japanese fiscal policy.

“There were short-term results but it didn’t produce a lasting revival.”

The Doto Expressway in Honbetsu Town, Hokkaido. The underused motorway marks the apex of Japan’s massive programme of public works in the 1990s and early 2000s. © Yasu/Wikimedia

Veterans of the era point to a number of reasons for the failure. The spending packages were intermittent and seldom matched their headline size. Pork-barrel politics sent cash to the least productive projects in rural areas. Meanwhile the bad debt crisis in Japan’s banks festered, and the underlying pace of population and productivity growth continued to slow.

The question for any country now tempted to launch its own spending campaign is whether Japan made errors that can be learned from, or whether efforts at fiscal stimulus in a democratic system inevitably get channelled into less productive uses.

The broad academic consensus is that spending did stimulate the economy, said Prof Ihori. “Most of the applied work finds that the multiplier was a bit greater than one,” he said. The fiscal multiplier measures how much a unit of fiscal stimulus increases output. “With public works the multiplier is one almost by definition.”

FT Series: Lessons From Japan

As developed economies struggle to recover from the pandemic, what lessons can be learnt from Japan, which has been battling low growth and interest rates for decades?

November 23: Fearing prolonged stagnation, governments are looking to Tokyo’s experience

November 24: Adam Posen: ‘When Japanese policy turned round, so did the economy

November 25: Can a Japan-style public investment boom save the global economy?


November 26: What ‘Mrs Watanabe’ can tell investors about how to cope with low returns

November 27: Living with stagnation — the experience of Japanese youth

But it did not spur a notable recovery in the private economy. Consumption rose a little but private investment went down and politicians periodically became alarmed about the budget deficit.

Meanwhile the efficiency of Japan’s public works packages declined — some of the new infrastructure was sparsely used and struggled to pay for itself with user charges, leading to complaints about “bridges to nowhere” and gratuitous concreting of the countryside.

Some of the money that went into construction may have been better spent on education or support for families, which might have relieved Japan’s declining birth rate.

Line chart of Government expenditure on investment (gross fixed capital formation), as a % of GDP showing Japan turned to public investment to stimulate the economy

What is important, said Randall Kroszner, former Federal Reserve governor and now deputy dean of the University of Chicago’s business school, is “getting the most bang for your buck” in terms of raising productivity. It is a mistake to assume that building infrastructure will ensure future growth, he said: “Japan illustrates that doesn’t work.”

On the face of it the EU, which has its own bridges and airports to nowhere, has heeded the lesson. It wants member states to use its new €750bn recovery fund to promote energy efficiency, low-carbon technologies and digital skills.

Line chart of General government net lending/borrowing as % of GDP showing Japn's fiscal balance generally lower than peers since the 1990s

Infrastructure needs vary widely across the bloc; Germany and Italy, which ran tight budgets for a decade, need to invest in transport and broadband connections. By contrast Spain, the European economy hardest hit by the pandemic, has among the best high-speed rail, broadband and road networks on the continent.

But, said Alicia García Herrero, economist at Natixis and senior fellow at think-tank Bruegel, spending to raise productivity requires long-term planning which runs counter to the need for speed. She feared that European governments would turn to infrastructure investment because it is what they know well after decades of EU cohesion programmes.

A Spanish high-speed train heads towards Madrid. Spain’s strong transport network means its economy would not benefit as much from fresh infrastructure spending. © Getty Images

Instead, governments should focus on supporting incomes and small businesses, she said: “This is a demand shock. No bridges are being destroyed. This is not a war. You don’t need to build more.”

The main lesson from Japan’s public works drive is that, eventually, Japan abandoned it.

But the lure of grand projects continued to be almost irresistible to politicians. In recent years under then-prime minister Shinzo Abe public works made a comeback, including the $85bn plan to build a maglev train from Tokyo to Osaka.

Across Europe and the US, this history shows how difficult it is for politics to stay focused on government investment that has the best return — rather than concrete, which is rapidly visible to the electorate. 

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Can plant-based milk beat conventional dairy?




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Plant-based milk brands are churning up the global dairy business, with a surge in sales, investment, and new products coming to market. The plant derived dairy trade is now worth an estimated $17bn worldwide.

Growing consumer demand has boosted investment. According to data firm Dealroom, venture capital funding across the plant-based dairy and egg sector has skyrocketed, from $64m in 2015 to $1.6bn in 2020.

The world’s biggest food company, Nestle, recently launched its first international plant-based dairy brand, a cow’s milk substitute made from yellow peas. Wonder will come in a variety of flavours, competing with established brands like Oatly oat-based milk. Founded in Sweden in the 1990s, that company is now valued at around $15bn. Demand for alternatives to soya, which once dominated the dairy free market, continues to escalate.

In the west, sales for other plant-based milks, including oat, cashew, coconut, hemp, and other seeds overtook soya back in 2014. Since then, they’ve raced ahead to be worth almost three times as much as soya products, with a combined projected value of more than $5bn in sales by 2022.

Advocates argue that plant-based production emits less greenhouse gas than cattle, making it the way forward to help feed the world and curb global warming. But dairy groups are fighting back with their own sustainability campaigns. And cow’s milk is hard to beat when it comes to naturally occurring nutrients, like protein, vitamins and minerals.

The average 100 millilitre glass of cow’s milk contains three grammes of protein, compared to 2.2 grammes in pea milk and just one gramme in oat-based substitutes.

Dairy producers have also won a legal bid, preventing vegan competitors in the EU from calling their products milk and yoghurt. Despite their growing popularity, plant-based brands are a long way from displacing conventional milk products. Their current $17bn turnover is still a drop in the pail, compared with the traditional cattle-based dairy trade, which is worth an estimated $650bn worldwide.

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'It’s more than sport – every day we are fighting for our rights to be equal’




French pro basketball player and podcaster Diandra Tchatchouang on her role beyond the court

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Emily Dean on how allyship amplifies the female experience on film




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When I was six years old, I decided to be an artist. When I was 12, I decided to be a filmmaker. And instead of saying no, you can’t do that, or it’s not possible, my mum bought me a video camera.

After several years of working in the industry, I’m working with a female director for the first time. And it’s been such a gratifying experience. Women express leadership in different ways. Maybe you don’t have to be the loudest person in the room. But you can have great ideas.

And the best thing about being mentored by women and being a mentor to women is that make friends with women.

There’s something so powerful the women coming alongside other women, especially in a group setting. Because it means that you can and back each other up. You can support each other’s decisions, and you can amplify each other’s voices.

It’s about seeing yourself in your work. Seeing some part of yourself reflected is really gratifying. It’s also important that we speak up for female characters. I want to see girls and women on screen who have the whole cacophony of experience of what it’s like to be female.

I want to see their flaws. I want to feel their struggles. I want to see their joy. That is so important to making a character feel real. And it took me a little while to settle into myself and realise, if the characters I like to come up with are not your everyday run of the mill characters you see in animation, that’s fine. Because this is who I am.

When you walk into a story room, when you’re working on a film, you have to leave your ego at the door. I think that can be interpreted like keep your ego out of the work. But I’d also say for women who are maybe more shy that leaving your ego at the door means you walk in. And your job is to focus on what’s best for the story and for the film.

The story needs you. The film needs you, and it needs your best ideas. It won’t thrive unless you speak up.

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