Hiroshi Mikitani

(Recommended by Bill Gates)

Why is innovation important? Or why price should stay the same, while we continue to innovate?

Long story short, innovation is the major force of economic growth.

Before the economist Joseph Schumpeter came up with this theory, economists believed that the main driver for economic growth was profit—the excess from profit could be reinvested in scaling up the business or could fund new research. However, profits can be easily destroyed in price wars, where the competition offers the same or a similar product for a better price. As a result, margins become smaller and smaller, i.e., the price comes closer to the production cost, unless you differentiate your product.

At the same time, even in the absence of price wars, an increase in business scale can't alone ensure long-term economic growth because the expansion of the workforce that comes with the increase in scale only means more wages to pay, therefore increasing costs.

What economic growth really needs is an increase in productivity and a continuous improvement of the product, which can only be driven by innovation. Consequently, profit is solely the effect of economic growth, and not at all the cause.

This was my main takeaway from this book, but not the only interesting economic concept put forth by Hiroshi's dialogue with his father, Ryoichi. Other ones where Duessenberry's demonstration and ratchet effects, the Laffer curve of maximizing tax revenue by changing tax levels, etc. Oh, by the way, is bureaucracy necessarily bad? You'll be suprised, maybe, to find out that there are some well paying and very highly performing bureaucracies out there.

Having spent only a couple of weeks in Japan, I had a few intuitions about how isolated the Japanese society is, about how the heyday of Japan is a few decades gone, and how actually it's ironic that they have spaceship toilets, but credit cards don't work almost anywhere and the city of Tokyo is not welcoming at all for disabled people. Just like the many Japanese films I've seen, this book confirmed most of my intuitions. After you know the facts (for example, after you find out about lifetime employment and the lack of women in the workforce), all the proposals in the book become common sense. What took me by surprise was the idea that, in a country like Japan, Rakuten has already been functioning for years with English as the language of work. I wouldn't have deemed it possible, but it's probably speaking well about the success of Rakuten. Also, I am glad to find in the Mikitani family, much bigger supporters of the American economic policy than I am myself.

Last but not least, the point that we shouldn't be terrified by globalization, but, on the contrary, embrace it faster than anyone else becomes utterly important in the current context of Brexit, Trump, and the general geopolitical situation in Western countries. "Globalization doesn't mean losing your nationality," writes Ryoichi in the epilogue. There is no gain in isolating ourselves from an increasingly globalized world. It will catch up with us anyway, and the wave will crush us if we don't learn to ride it in time.… (more)