Japan’s battery-powered recovery

As Japanese Prime Minister Shinzo Abe looks for ways to reboot Abenomics, he could do worse than heed the advice of Kurt Kelty. Delivering a public speech on a recent Friday evening in Osaka, Tesla’s director of battery technology captured all that’s wrong with the Japanese economy. “We need to take risks, otherwise there will be no prosperity in business,” Kelty said in fluent Japanese. “We take risks, but it seems not the case in Japan.”

Japanese are often sensitive when outsiders (known as gaijin) criticize their country, but Kelty’s criticisms couldn’t be ignored. He’s a 15-year veteran of the revered energy solutions lab at Panasonic, one of Japan’s iconic electronic companies.

Panasonic, in fact, was an exception to Kelty’s tough love remarks - which is no accident. Tesla recently announced that it’s partnering with the company in creating a so-called gigafactory to produce high-tech car batteries.

Panasonic is the rare Japanese company that has taken chances and profited from them. Started in 1918 in a two-story home in Osaka, it eventually became a multinational electronics powerhouse. After falling behind Apple and Samsung in recent years, it eventually made a decisive pivot - in 2013, it abandoned the plasma television market and began focusing on batteries and solar panels. That decision paid off massively with the Tesla partnership.

Tesla isn’t alone in tapping Japan’s tech prowess. Apple is opening a new research and development center in Yokohama. But Tesla is spotlighting Japan’s most lucrative future industry. Since the late 1970s, when Kyushu University helped develop the dual carbon battery, Japan has been a leader in the field. And demand for batteries is expected to soar in the years ahead, with high-range batteries expected to replace fossil fuels in cars, airplanes, ships and even buildings. In addition to helping save the planet, they could also help save Japan’s economy.

Politically, the timing of Tesla’s Japan collaboration couldn’t be better. With executives of Japan’s biggest companies predicting deteriorating growth and more deflation this year, Abe can evoke the partnership to get his economic program (known as Abenomics) back on track.

Since taking office in December 2012, Abe has increased public-works spending and engineered a 29 percent drop in the yen. But he’s made scant headway in increasing Japan’s competitiveness or in cultivating a more entrepreneurial culture that creates wealth and attracts investment. As Kelty pointed out in his speech, Japan has all the ingredients for success - just not the policies to realize it.

Abe should seize the opportunity to announce new tax incentives for startups, especially in the renewable energy sector - batteries, solar, wind and geothermal power. The government should also create a series of venture-capital pools and safety nets that support would-be innovators and incentivize them to take risks, and sponsor training programs to inspire more entrepreneurship among young Japanese. Next, he should then accelerate his government’s timetable for launching so-called special-enterprise zones where businesses wouldn’t be subject to red tape. Better yet, Abe could push to cut red tape from the entire economy.

A renewable-energy boom would do for Japan what quantitative easing can’t: produce a thriving economic ecosystem that creates wealth, jobs and international esteem. And Japan is perfectly suited to profit from the demand for better batteries. Japanese companies have a track record for delivering quality and delivering it on time. Tesla, after all, could have gone to China for copy-cat technology, but it knew it would be better served in Japan.

As for Abe, he should be evoking Panasonic at every opportunity; it offers a clear example of how the Japanese economy can recharge its own battery.

*The author is a Bloomberg View columnist based in Tokyo and writes on economics, markets and politics throughout the Asia-Pacific region.

by William Pesek