MY opinion this week(124):

Introduction of balance sheet to public sectors

  The Summit at K is over and Japan was assigned another homework to
conduct several additional measures to vitalize economy. Prime Minister
Obuchi promised to take many additional measures to another leaders of
the Summit. A lot of money is being spent for various public investments,
employment promotion measures, various overseas aids, etc.  Whenever, 
leaders of this  country visit foreign countries, they promised to make
some financial assistance. 

 The biggest spending of all such measures is the introduction of public
funds to assist banks which are in some serious financial difficulties
owing to big bad debts. President Clinton praised Obuchi saying that he
was doing very well in conducting so many things. The latest public opinion 
poll showed that majority of people supported Obuchi Cabinet contrary to
the one conducted six months ago. Yes, he is doing well promising to spend
a lot of money. But wait a minute. What is the source of funds to do so many
things and so many projects? Is overall financial condition of the country
all right?   It is strange that no such basic questions have not be presented
so much in relation to those measures.

  Needless to say, the financial condition of this country is in serious 
situation as a matter of fact. While annual revenues decrease greatly due to
the reduction of tax revenues,  annual expenditures tend to increase constantly
as mentioned above. How can such great deficits be covered ? The deficits can
be covered only by issuing red national bonds and the increase of tax of 
various kinds. Under the present circumstances, the increase of tax is hard 
to be accepted by the people. Therefore, so many problems of financial 
deficits are just extended for the future. Every additional measures which are
now taken by the Government will leave a great deficits to the people of the
country in the future.

  All of those welfare systems including public pension, medical insurance,
and nursing insurance system, etc. are also facing to a great financial 
difficulties. In Japan, it is said that there is about 120 trillion yen 
private saving which become the basis to support financial structure of 
the total nation. A big doubt is casted now about the guarantee of such saving
for the existing of such great financial debts of the country. It is expected
the total asset value of the country is now a big minus under the present 
condition of the national finance.

　Under such situation, it is often pointed out that the financial conditions
of the country should be described in such manner as they are described in
private business firms. More specifically, they are to be described in 
balance sheet and other financial statements as ordinary used by private 
firms. Rather than just describing revenues and expenditures in one single
year, the financial conditions of the country should be recorded by balance
sheets, i.e. short term and long term assets and short term and long term debts
and net existing assets of the country . If we regards Japan as Japan 
Corporation,  Ltd., it is very meaningful to use such financial statements 
as balance sheet to describe real financial stock conditions of the country.
I wonder why there has been no such ideas at all in the past. 

  The other  feature of recent financial and accounting practice of private
firms is consolidation of financial statements of all subsidiaries firms 
and parent company. The same consolidation ides is applied for the public
sectors. The financial conditions of local governments  are also very serious
at the moment. The consolidation of all local governments and the central 
governments is another key to make exact evaluation of total financial
conditions of the country. 

 For example, Bungei Syunjyu of May Issue showed one simulated balance sheet
of the country as of March 1996. According to that simulation , the total 
minus assets of the country counts 90 trillion yen. What a huge minus net 
value it is!

  Suppose the country is a private firm, it had gone bankrupt already.
The government is taking care of banks which went bankrupt such as Cyogin
Banki and Nissaigin Bank, but the parent corporation itself has already 
faced a serious financial conditions.  Some of the basic restructuring
measures can only be discussed after such  serious conditions are described
more in detail as explained above.

 In summary, it is suggested that such basic accounting system used for
private firms should also  be introduced to public sectors i.e. both central
and local government so that some basic and concrete improvement of the 
financial structures can be started as soon as possible.

1999/7/3
Tadashi HAYASE

My opinion this week(125)

Sue for auditors

  Yamaichi bankruptcy lawyers hinted recently that they might sue the former
auditor, Chuo Auditing Company, insisting that their audit process for 
Yamaichi was not lawful. It is reported that the same action may be taken
by Monetary System Supervisory Bureau of Ministry of Finance against auditing
firms which audited  Chogin Bank and Nissaigin Bank.

　I believe that such sues are quite right. It is not fair if that would 
not happen. The Chuo Auditing Company said that all auditing process had
been done  properly according to the accounting rules as designated.  The
same comments were heard from auditing firms of two banks. Their excuse
is a kind of same. Some of those transactions which were not found by any 
internal auditing system by using foreign and domestic subsidiaries were beyond 
their capacity to find such illegal conducts.
  
  However, I think those are their excuses any way. Regardless those 
transactions made between subsidiaries found later on, no total capital 
deficits was reported at the time when Yamaichi went bankrupt. Such 
tremendous amount of capital deficits totaling 16 billion yen have been 
found out during liquidating process of the firm by court-appointed bankruptcy
administrators. The capital deficits may turned out to be even larger.

  Based on the balance sheet and the other financial statements, it is judged
that there was no such capital deficits, although the company went bankruptcy.
Needless to say, those financial statements had been audited thoroughly by
the professional auditing firm, Chuo Auditing Company. They presented the 
letter of guarantee to shareholders stating that all of those financial 
statements are exact and proper 100% in view of all legal and accounting
principles  point of views. But they have obviously made mistakes in this
connection. It is natural that they are to be sued in this regards.

  They may have several excuses for such result. They insist that it was 
quite difficult for them to find any of such misconduct done by subsidiaries
which are beyond the scope of their auditing works. But I wonder if they do
not really know the whole process at all. 

  As you know, all financial statements are prepared very rationally and
systematically. They are closely connected each others. Any of such big 
debts are hard to be processed without leaving any records and evidence. 
Those accounting professionals naturally know some of those unlawful 
process of transactions. At least, they could have guessed it. But they 
avoided to step in further with the notion that it is beyond their work. 
They wanted to maintain their important customer in this way.

  Just like ordinal business firms, it seems that many of auditing firms
have lost their business ethics in recent years in this way. 

  Well, I don't know whether or not this observation is right. But all I
have to say is that some of those sues are to be occurred by all means. 
It may take long years for us to see the outcome of the court decision
on those cases.  All of those process, however, would provide a good 
opportunity for all business and auditing firms to start  revising their
accounting and auditing process, regardless the outcome of the court 
decision.

1999/7/10
Tadashi HAYASE

 My opinion this week(126):

Premise for knowledge-based society

 An advisory panel of Economic Council to Prime Minister Keizo Obuchi adopted
a 10-year plan to convert the economy into a society based on knowledge and 
ideas. They proposed about 10 basic points to revitalize Japanese society and
economy in 21st century. I have no time to discuss all of those points in 
detail. But the most important word in the report is the construction of 
knowledge-based society or intelligence oriented society. It is reported that
Mr. Sakaiya, the Minister of Economic Planing Agency, wrote this part by
himself stressing this word.

  Recently, Mr. Sakaiya wrote the book titled "knowledge value society" .
He explained the conversion of social and economic structure from commodity-
based and technologies based society to software and service based society.
We have to create such society where we enjoy to create various intelligent 
products such as software and service rather than hardware as in the past.
It is the society where we put more values on intelligent production rather
than on hardware production. I have no objection at all on such concept and 
ideas suggested in the council report.

  The question is that how many people of Japan basically understand such
abstract notion and concept.  Well, that is only abstract concept to be
materialized  in many decades later on in Japanese society. People's keen
interest at the moment is that the current economy will be improved so that
various business conditions and unemployment rate , etc. will be better. 
They have no ideas on what the report intended to talk about on construction
of knowledge-based society.

 It was the fourth time that I had attended the Shikoku Forum last week.
The main topics was to discuss such big issues as how to vitalize Shikoku
economy through development of infrastructure of transportation and 
information.  That's fine. However, I have always felt that a certain 
concrete plans and strategies to attain such objectives are always lacking
in forum discussion. In connection with the discussion, I used to suggest
the point that it is the human being that should be educated to meet such
social change as globalization and information oriented society. Training
and cultivating such human being are necessary not only for Shikoku but
also for all over Japan.  

  The basic theme here is to educate such human being who would be able
to enjoy creating intelligent production and playing with such products.
Japanese , in general, lack the capacity of both creating intelligent
products and enjoying such intelligent process. They lack the ability to
express their own ides and opinions on various topics in such forum meeting
and others. Most attendants to such forum, are elite selected from 
governments, business, education, and cultural institutes. But it seems 
that they are mostly very weak in expressing their own ideas on common 
topics presented in front of them.

  One serious disadvantage of Japanese is the lack of ability to have 
their own ideas and opinion and to express them by their own words. In 
every forums, some keynote speeches are usually presented by guest speakers.
Reference on those keynotes have often been made by attendants in the
free discussion sessions, but few would argue the contents of messages 
presented by guest speaker. I always wish that people should express their 
original onions in connection with the speeches made by guests.

  I think that is the problem of people of Japan. They are to be trained 
so that they can express their own opinion with their own words rather than
just making a lot of reference. The ability to express their own idea is , I
believe,  the most important element to make intelligent production.  The 
good condition of American economy is based on the fact that a number of
new ventures have been developed in the fields of information technologies.
Such new ventures have been born and incubated by people who are motivated
to have their original ideas and opinions of their own. 

  I agree with the concept to construct knowledge-based society in 21st 
century. But in order to materialize it , I think it most important to
add some concrete educational plan to cultivate such people who are engaged 
in such process. The needs of such education have also been advocated so
often in the past, but they have not been started yet, unfortunately.

1999/7/17
Tadashi HAYASE

My opinion this week(127):

Who destroyed venturesome spirit?

  1999 the Economic White Paper submitted by Economic Planning Agency have 
been approved by the Cabinet Meeting held last week. The White Paper stressed
the deterioration of the effects of finance and monetary policies, while many
business firms are taking restructuring measures to solve the excess of three
business sources i.e. employment, equipment investment and financial debt. In
order to meet such circumstances , the White Paper stressed the importance of
starting new ventures and innovation without worrying too much about risk to
fail and of fostering spirits to make financing and investment on various new
fields.

　I have no objection about the point that is stipulated in the Paper. That is
the key to revive Japanese economy in the long run. The one side of the road
is to diminish bad debt, excess equipment investment and excess employment
although they are kind of backward and negative measures for any business 
firms. The other side of road is to revive the challenging spirits for business
operation by recovering innovative and venturesome spirits for leaders of 
business firms.

  When I read this, however, I did want to say :"Wait a moment." I would like 
to ask the authorities who is responsible for creating such circumstance where
leaders of business firms have lost their venturesome and innovative spirits.
In finance fields, there are notorious a convoy ship system and the Government
have basically controlled the whole financial system. In construction fields
the Government have virtually controlled the business of general constrictors.
The Government have just offered another public funds to help manufacturing 
firms in order for them to discard excess equipment investment.

  The name of safety net is fine. But all business enterprises are responsible
for themselves for decision they had made and the result they have got. The
Government take too much cares preparing too much safety net for risks. This is
the major background why Japanese enterprises have lost the basic spirit as 
business enterprises. The problem is the Government policies themselves that
have created the present circumstances.

　 While the White Paper requested enterprises to recover venturesome mind,
they continued to have offered so many safety nets including public investment
to promote business chance and public funds to stabilize financial system.

   While the White Paper have mentioned some doubt about effectiveness of
conventional financial and economic policies, the Government has just 
announced another extra budget to make the same kind of actions. The most
important action that the Government has to take right now is to minimize
the parts played by themselves together with significant deregulation's and
opening of market. The key word is a small Government as it is.

  I wonder why the White Paper has not mentioned about this at all. It is
the Government who have destroyed venturesome spirits of business 
enterprises. The reconstruction of central Government is about to start but
a kind of more drastic administrate reform seems to be necessary. We should
remember the word in the inauguration speech of President Legan. " The 
Government is the problem."

 I believe that construction of small Government and establishment of real
market economy are two premises to recover enterprenership in Japanese 
business and economy as the White Paper requested.

1999/7/24
Tadashi HAYASE

My opinion this week(128):

The great power of Internet

　A man who bought a video tape-recorder of Toshiba called the service 
center of the company to make a certain claim. He got a kind of 
unbelievable abusive words from a service man who answered the call. 
While some of those interactions, the man recorded the conversation and
put it open on his own home-page . This had drawn a great attention in 
Internet world and the total access to the page reached to almost one 
million for a few days. I tried to access to it by myself, but could not
do it for the very crowed traffic.

  At the first stage of development, Toshiba seemed to be more optimistic
about what had happened. They said that they usually took an appropriate 
action to answer any of such claims and the case happened at that time was
not any normal one at all. The comment might have suggested that the claim
at that time went beyond the ordinal level of any claims. Having faced to
such huge attack in Internet, they had brought the case to a district court
so that the home-page should be eliminated temporary before the formal 
decision by the court.

　A number of home-pages which supported the man's claim appeared in Inter-
net and some started a joint movement to boycott Toshiba's products. Many
mass media reported this news and the case had become a big social issue.
Because the case became such a big social issue, Toshiba which took a strong
attitude against the case at the beginning, decided finally to apologize 
to the man. The Vice President, who is in charge of the case appeared in 
the press conference to express their apologies to the man.

  The comment made by the VP was very impressive. He said :" We have realized
that Internet today is so influential and it is a kind of risky power as a
matter of fact. "  The comment made by the VP of a maker of PCs which are 
used to access to Internet and to utilize them effectively sound very 
ironical one to me.

　There was another point stressed by mass media concerning risk management.
Risk involved today for any business enterprise are related not only with
some of those natural disasters but also with some of those on network
disasters, I understood what they said. However, I had happened to have
some concerns about the stance how several newspapers reported the issue.
They mostly reported the case very objectively. But it seems that some
ones expressed concerns the fact that such home-page prepared by an individual
had caused such a big attention nation wide. For most newspaper firms, Toshiba
is an important sponsor of advertisement. I just wonder if any one of those 
newspaper firms could have drawn such an big attention on this issue as the
home-page of an individual person could do. It is obvious that the fact is
not necessarily pleasant one for any mass media, I guess.

  I have no intention to make any comments on what would be the outcome of
the court decision once this had brought to the court. Let's put it aside
as to what would be the court decision. I would like to pay the utmost 
attention on such huge power of Internet shown at this time. The fact is 
that Internet will become a very strong right power if used properly,
that will never be overwhelmed even by conventional mass media. On the other
hand, that will become a very strong evil power if used improperly.

  It is possible that some stronger opinion to restrict home-pages as such
which are easily prepared by any individual without any check and control
beforehand. Many of such restrictive movement for home-page presentation
may come up from now on. Some of those ordinal networkers who try to
issue various information properly and in the right manner feel that  it
is their responsibility to stop such restrictive measures in any ways. 

  As one of a networker, I have the same concern and wish that any of such
restrictive movement should be avoided in network world which we try to build
in the proper way at the moment.

1999/7/31
Tadashi HAYASE