June 30, 2011
by Annelise Riles
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What can the financial crisis teach us about an environmental crisis (and vice versa)?

The Fukushima nuclear disaster is causing Americans to begin to ask important questions about the safety of our own nuclear reactors. Meanwhile, in Japan, many people are making comparing their government’s response to the US experience with Katrina or the BP oil spill.  Yet the lead-up and fall-out of Fukushima is eerily reminiscent of the conditions that led to the US financial crisis of 2007.  This suggests we might ask where the makings of the next crisis—financial, environmental, political, security-related—might be: where else do we find the same conflation of causes? 

Here are some similarities:

A collusive relationship between regulators  and industry, facilitated by mobility of staff between the two, facilitated a group-think consensus that downplayed risks and placed great faith in industry self-regulation. 

As in the case of financial firms at the center of the American financial crisis, a company—TEPCO—was implicitly understood to be Too Big To Fail. Hence the moral hazard problem was enormous.

Academics largely failed to serve as objective and independent sources of expertise: in both crises, elite academics generally sided with the industry and testified in court cases on behalf of the industry, thus creating a sense that criticisms or doomsday scenarios were the work of less elite non-experts who did not really understand the science.

Prior to the crisis, there was a lack of appreciation on the part of the general public of how ordinary actions fed the vicious cycle that in the end endangered us all.  Just as it easy to demonize Wall Street and forget the role of ordinary Americans in gaming the sub-prime system, it is easy to forget how our own vociferous appetite for energy fed this beast.

The ultimate cause of each crisis then, is the repeated lack of imagination and courage–on the part of -the executives who might have invested in safer technology, the middle level managers who might have made different recommendations to their higher ups, the bureaucrats who pushed the reports along rather than risk their reputations on challenging the group think that said the industry was totally safe and should be left alone, the professors who might have asked different questions, lawyers who fashioned logically defensible but ultimately counterproductive arguments on behalf of their corporate clients, the journalists who didn’t push too hard, the citizens who might have used the power of the purse more effectively.  

The consequences too have some similarities:

The costs to ordinary citizens’ property, physical and psychological well-being, and quality of life will be long-lasting and on-going—perhaps for generations.

A  government bail-out is eminent and it is likely that most of the large financial players—the executives, bond holders, and even shareholders—will end up getting off much better than they might have while victims will receive much less than they deserve.   

The costs of this bail-out to the national treasury, and its implications for the long term economic health of the country, will be enormous.

Although there is public outrage, the outrage still seems largely unproductive: unfocused, lacking in creative leadership about what reforms to demand in return for the significant public assets this disaster will cost, and tainted by a kind of nationalist rhetoric that deflects attention away from the ongoing institutional and political causes of the crisis.

One of my conclusions after watching with despair the hollowing out of the Dodd-Frank Act and now the Japanese failures at Fukushima is that ordinary citizens and market participants must stop waiting for the government to make things safe. The interests involved are such that politicians are probably the most unlikely sources of leadership. Instead, we should start thinking about our markets, our environment, and our security more generally as something akin to a public park—a commons that we value together and that we all need to pitch in to maintain from whatever vantage point  we participate in it—whether as consumers, traders, regulators, scholars, and so on.  As the old slogan goes, if the people lead, the leadership will follow. But for those of us—that is almost all of us—who have some measure of responsibility for these crises, daily pressures often get in the way—a fear of risk-taking, a lack of imagination, or just the pressures of time and the fact that it is quicker and easier to go along than to buck a trend.  But what if we began to see that the millions of small choices we all make in those moments in the aggregate are challenging our collective security?

In this respect, one of the only encouraging trends coming out of Japan’s nuclear disaster is the efforts ordinary citizens and corporations alike are making to conserve electricity (even in the almost unthinkably tone-deaf suggestion by TEPCO that it now will have to raise rates to make up for lost revenue).   Ordinary people are moving beyond retrospective blame and starting to do what they can—from the little corner of the problem they can influence,  to make change and collectively it is making a big difference. 

It will be interesting to see what the next step will be.  Will some TEPCO employees be inspired to wage a battle within the company to steer a more socially responsible course? Will judges, begin to think about their own accountability for public security when faced with a lawsuit by a citizens’ group? Will bureaucrats inside the relevant ministries begin to think about what creative work they can do, from where they stand inside the bureaucracy, even if they imagine that there is a risk that it might come at some personal cost to their careers? Will academics think more carefully about their public responsibilities in defining topics of research and evaluating the evidence? Will journalists begin to see more independent, and meaningful information about the causes, dangers, and alternatives to this disaster might anger some corporate interests but also will gain them the respect of readers? As with the financial crisis, there is an opportunity here, amidst the devastation.

June 20, 2011
by Annelise Riles
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Japan: The country that can’t cooperate

There was a truly saddening story on the front page of the New York Times on June 13 about events surrounding the Japanese government’s response to the Fukushima crisis in the days immediately after the earthquake. Prime Minister Kan rightly mistrusted the nuclear industry and the government’s own nuclear experts, the article says, and hence relied upon a small group of close advisors, none of whom had expertise in the problem. The officials in the relevant
government ministries with material information that could have saved lives didn’t bother to try to get this information to the Prime Minister because, they said, he didn’t ask for it. The company hid information from the government. The academic experts obscured the issues. According to the Times, these people only started actually speaking to one another when the Americans came in and demanded information–and hence they all had to get on the same page about what to tell the Americans at their daily briefing. As I was discussing this over lunch with a senior bureaucrat today, he sighed–Japanese are people who don’t take any responsibility. And indeed, the only person (save perhaps the Prime Minister and his crew) who took any personal responsibility in all of this to do what they could for the welfare of their fellow-citizens was the manager of the Fukushima plant, did so by actually disobeying the orders of his superiors (and thereby probably saved many lives).

We often think of Japan as a country in which people know how to cooperate, and indeed the foreign news media has been full of wonderful stories about how much cooperation there has been among the citizenry in the aftermath of the earthquake. But at least at the policy and corporate levels this was a case of failed cooperation of an almost unthinkable magnitude with disastrous and enduring consequences.

Although readers of this blog know I am a big defender of Japan against Western stereotypes of all that is wrong with the place, I have to say that the Fukushima incident has given me pause. Japanese may be able to cooperate in certain settings–they know how to work together within the family or the company or how to line up for the subway–but what does this disastrous failure of cooperation and lack of will on the part of politicians, bureaucrats and corporate executives to sacrifice for the public good, or at least take responsibility to do all they can in this case, say about the Japanese cooperative ability? What kind of response is it, for a ministry bureaucrat questioned by the Times as to why he did not inform the Prime Ministry that they had a warning system available to let the public know the radiation risks they were facing and thus possibly avert tens of thousands of future cases of cancer, to say “well, he didn’t ask”?

My own country certainly has its sickening examples of government officials failing to live up to their public responsibilities or work together collegially. But in Japan too, perhaps, there is a need for some serious reflection on how to build a more cooperative culture.

June 14, 2011
by Annelise Riles
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A Japanese Perspective on American Markets

There is an old stereotype of Asian markets that goes like this: Asians don’t really have capitalism, they have relational capitalism. Relationships are what matter first in Asia.  And then the standard critique follows: and that is why their  markets are inefficient, because they care too much about relationships.

In this light, I found the following observation by a Japanese lawyer over dinner the other night about what is wrong with US markets deliciously challenging to the standard dogma: Why, he asked me, when Americans meet in the market, do they insist on pretending they are friends? “When I hire a taxi to take me from point A to point B,” he said, “it is because I want a ride, not a conversation.  Why do I have to engage in the farce that what I am really after is a chat about the weather with the driver? Or when I go to get my haircut, it is because I actually want a haircut.  Or if I want to buy a sandwich, it is because I am hungry, not because I want to make friends with the waitress.  I talk all day long for a living, and yet I find that in America in addition to paying a fee you get charged another kind of charge–you have to do the work of making small talk too.”

He has a point–we Americans seem to need to dress up our capitalism as if it were relational capitalism.  In Japan, at least, in contrast, when you pay for a service, you don’t have to pretend the seller of the service is your new best friend.

June 3, 2011
by Annelise Riles
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An Episode in Japanese Markets

Yesterday I had an adventure that exemplifies some of the enduringly unique aspects of the Japanese market.
I left my office at 5:30 pm and took the thirty minute subway ride to Aoyama for my evening dinner appointment.  I arrived in Aoyama thirty minutes early and so settled into a cafe with a cappuccino to pass the time. Thirty minutes later I went to pay, intending to scoot right on to dinner.  That is when I discovered that I had left my wallet at the office.
First, I need to explain how this mistake was even possible. After all, in New York or Paris, without a wallet you wouldn’t get far.  But in Japan, virtually all transportation costs, from the subway to trains to buses and taxis, are settled through an electronic card called a PASMO.  You can pay for all kinds of other things with PASMO too such as purchases at convenience stores. It is a very advanced system backed by a legal and technological infrastructure that is years ahead of anything in the US now. But unfortunately for me my PASMO was not accepted at the coffee shop nor at the restaurant where I was heading.

So what to do? I summoned the waiter and apologetically explained my predicament. I expected a furious response but he showed not even a hint of concern or annoyance.  Just pay me later, he said. Can you imagine a New York waiter having that kind of trusting and generous reaction when faced with a customer he or she had never seen before? I gave him my business card and left.

I phoned my business dinner appointment and again profusely apologized for the fact that I was going to have to borrow money from him despite the fact that I was due to be the host. No problem he said. He had the equivalent of $600 in cash with him so he could cover it. Not a credit card, but a huge amount of cash was going to solve the problem. This was possible because Tokyo is relatively safe enough from theft that people don’t worry about carrying around that much cash. And so my friend’s usage of cash also reflects the weak power of credit card companies over consumers relative to the United States.  If you pay cash you don’t have the temptation to go into debt over ordinary indulgences.

When my colleague arrived for dinner he joked, “but is your wallet safe on your desk?” I realize it doesn’t sound like a joke at all to American ears.  On the contrary, if I were in New York or even in Ithaca this concern would have been a serious part of the dilemma I was facing. Would my wallet still be sitting on my desk in the morning when I went to retrieve it?  But we both understood that this was not something I even needed to worry about. As we finished dinner I borrowed some more cash from him and we stopped by at the cafe to pay my bill from earlier in the evening. The waiter wasn’t the least bit surprised to see me, and gave me back my business card.

The final episode in this adventure happened early the next morning when I went back to my office to retrieve my wallet. I needed to meet my dinner partner from the night before  at 9:00am on the other side of town for an academic conference and wanted to repay him the $500 or so cost of dinner. But my bank–actually not a bank but the local post office in fact–did not open until 10:00am. What to do? I simply walked into the convenience store around the corner, put my card in the machine and withdrew the cash. For this I was charged a fee of approximately US $3.00 I bought a nice envelope, since it would be gauche to hand over cash without an envelope, and headed back to the subway.

Japanese convenience stores, open 24 hours, on almost every street corner, are magnificent consumer centers. You can buy all kinds of things there from deli meals to airplane tickets to cell phone contracts to a clean pair of underwear. Young people have started using them for their banking needs more than banks themselves because you are never more than five minutes away from one and you can do your business at any time of day or night.  Of course it did cost me something. But not more than what I would have paid to use another bank’s ATM in the US and I doubt that I could have withdrawn that much cash at most ATMs.

All in all, as a consumer I have to say that this incident was unbelievably low hassle relative to what I would expect at home. In fact you could say that my whole foolish mistake was enabled by how convenient it is, say, to purchase transportation services. I should add that my encounters with service providers at every step, from the waiter in the cafe to the automated cash machine in the convenience store, were courteous, helpful and respectful. No surly staff or incompetent bank employees in a telecenter.  For me at least, this all counts for a positive aspect of a market.

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