Japan’s Difficult Choice Between Economy and Pandemic

Now of the country wants them to go away, but the government can't bear the thought of canceling because it feels like an admission that they haven't beaten COVID nineteen. This week, our Tokyo based economy reporter Yuko Takeo, has a great piece for you, delving into the economics and the politics of Tokyo one. Later on, I'll be asking our France economy reporter will Horror been about that landmark agreement which the G seven countries have supposedly reached to

extract more tax supposedly out of big multinationals. At the end, I'm also going to play you part of a conversation about the work from Home revolution with Stanford University professor Nicholas Blue. He says it could worsen inequality in the workplace, even as it also makes downtown apartments a bit more affordable. So plenty to come, but first let's go to Tokyo. This is a sound that the International Olympic Committee wants

you to hear over and over again. It's the theme music that would play when athletes at the Tokyo Olympics pick up their medals if the games go ahead, as did he, I feel I can already hear the footsteps of athletes making their way to Tokyo from overseas. There are people asking why we're holding the Olympic and Paralympic Games at a time like this, But I believe it's precisely because we're in these difficult times that we should

hold the games. That's Japan's Olympic Minister say Ko Hashimoto, who herself has competed in seven Games, first as a speed skater, then as a cyclist. I was listening to her speak in Ariak Arena in Tokyo Bay, one of eight bleaming new venues built for the Games. She was, therefore the unveiling of the award ceremony anthem. The medals podium and the medal's trade, each item demonstrating Japan's tirelest attention to detail and its government's dogged determination to press

ahead with the Games, come what may. It wasn't meant to be this way. The International Olympic Committee as the honor of announcing that the Games of the thirty second Olympias in are awarded to the city of Tokyo. As it was in four when the first Tokyo Olympics became a springboard for Japan's emergence as a major manufacturing power, the Games were expected to give the economy a helping hand. A country battered by a massive earthquake, tsunami, and nuclear

disaster would use the event to drive its recovery. The Olympics would also help the country attract forty million visitors per year. That inbound tourism would help sustain shops, hotels, and travel throughout Japan, or given the regions a boost as they struggle with the effects of a declining and

aging population. June Cito, an economist at the Japan Center for Economic Research, believes that Japan needs to attract more foreigners over the longer term, both for the tourism sector and make up for labor shortages in a declining, graying population. Man trying to boost the economy by linking the goal of forty million visitors to the Olympics wasn't at all unreasonable looking at the momentum before the pandemic. All of this is connected with what kind of legacy you're looking

to get from the Olympics. Still, the Games were never expected to compete with the economic punching power of the ninety four Olympics. Those games marked Japan's return to the international on stage from the destruction of the World War. A massive spending blitz built key parts of the capital's infrastructure, including its bullet trains and the elevated highways that give Tokyo it's blade runner look. That ambitious national project also got Japan hooked on the concept of the debt financing

government bond. In the decades since then, that addiction has left the country with the developed world's heaviest public debtload. I'm gonna taking me out of capital green. I you donder that's weightlifter setting a new world record defend off US challenger Isaac Berger. And when Japan's first gold medal at the nineteen sixty four Games. Now A sprightly eighty one year old Miak recalls the mood, hinting that the public may still rally round in support of the games.

You many sins over in Japan lost the war and it was trying to recover. The Olympics came around in nineteen sixty four and everyone was intent on making it a success. It wasn't quite like that at first, but as the Olympic came closer and closer, everyone started frying the Olympic caras. By the time the game as it started, the entire country was duped up in moment. Today coaches

the Tokyo International University weightlifting team. When I entered the training room with him, dozens of young men and women line up to offer greetings the back to the Olympic legend. The room of sweat and toil fills the air. As the students return to training. My ears are pounded by their pries and shouts and the sound of multi colored weights crashing into the ground. Among those pumping iron is

twenty four year old Massacuro Miyamoto. He has one member of the team who's highly likely to qualify for the Olympics this year. Like he's feeling uneasy over the page of the Games. Well, I've been thinking about the Olympics as long as I've been involved in sport, and I've always want to be a part of it. If the Games get canceled now, then everything I've dedicated myself to who have been for nothing. It's not only some athletes

who are hoping the Games will go. For Prime Minister Yoshihida Sugar, staging the Olympics could be a prerequisite for holding onto the pattern as Japan's leader. Eugi Zaka, an academic at Narrow Women's University, has spent his career researching the Olympics. He says that for Japan's leaders, there's no political upside from a cancelation, even with public opinion against

holding the games. Because the scrapped Olympics would symbolize the government's failure to contain COVID nineteen, Staging the Olympics is tantamount to having the virus under control. Together with getting the vaccines distributed faster, this could end up being a

plus point for the administration. Holding the Olympics has in a sense become a lifeline for the government, and that's why they can't cancel that ditching the Games would all to be bad for an economy that's already teetering on the brink of a double deprocession on the emergency restrictions,

But staging the Games comes with obvious risks too. Bringing seventy eight thousand people to Japan from around the world could turn the Games into a super spread event that could have a greater cost for the economy in addition to the human consequences. One reason why many corporate leaders have joined medical professionals in calling for a cancelation. With little more than six weeks ago, the national consensus in favor of the games lies in pieces chattered by the pandemic.

Even Mia, our gold medal hero from four acknowledges that a late surge of support has yet to arrive. For what you can do compre how people feel. But the people, our citizens, even my friends and really in that one

in big commodity. Yet I do say as that they talk yoga, coredent's, they talk your clus Now there's a nerdy topic which we've come back to a few times on this podcast, that actually made it to prime time news this weekend when G seven finance ministers agreed on a deal to charge a global minimum tax on the profits of big companies, so I think it's it's only fair. We get the low down on this from Bloomberg's France economy reporter William Horribin, who has been dutifully following this

story from the beginning. Will and then we have we have a few other things to talk about today. But let me ask you about all the headlines that we saw at the weekend tax on on these big global companies. Does that mean that companies like Google aren't going to be able to do all these kind of fancy avoidance operations anymore and end up paying no tax anywhere? I guess the short answer is yes, they're not going to be They're not going to be able to do those

things anymore. Um. But what was really significant about what happened happened at the G seven was in some ways more political than technical. There is there's some detail in the in the final communicator that they've put down on paper, um, But what it actually happened is that they've resolved a major divide between Europe and the US on who gets to tax the multinationals, how we share out the spoils

of globalization if you like. Um, and if we remember that Trump always used to say his stance was America, America taxes it's companies, not anyone else. And europe response was like, how on a second. These are huge up, they have huge operations in our country. They're relying on our infrastructure, our people. Um, but they're not paying any tax here and we want a slice of that pie.

So what happens at the G seven this weekend is that everyone sort of recognizes, Okay, these multinationals, they need to pay more in the places where more of the tax that they do already pay in the places where they're actually doing business. Um. So the home countries, if say, for Google, for the US, need to share out some of the rights to tax the profits of Google. And it's worth pausing for a second there, because what they have essentially agreed to is to let other governments tax

their companies instead of them. And conceptually, even even materially, this may not be huge, but conceptually that's a that's a huge breakthrough. And for the purpose of these years long negotiations that have been happening at the o c D is also key. You know, people at the o c D always said, we're doing all this technical work on lots of the nitty gritty of how to rewrite tax legislation around the world, But what really, what really has blocked us is this agreement on this willingness to

share out right to tax companies. And once that's resolved, they've always said, the rest will just flow from that. On the face of it, it seems surprising that the US would be willing to give up that right. They've produced this big, these big, successful global companies. Surely you want, if you're the US, you want to keep as many

of those tax revenues to yourself as you can. Well, there's there's various elements to how to respond to that, and why the US has shifted, the simplest way of putting it is that they've realized that if they want to get what they want, they've they've got to cooperate, and we've got to have a system that is stable to some extent, rather than lots of people threatening each other with tariffs or putting in place taxes on the

revenue of American companies all around the world. Um. So it's that sort of this moment that you realize, you know, these countries all countries around the world perhaps have been competing on the basis of tax, and in some ways, you know, they've decided actually with probably in our interesting we become more of a cartel and so then we

can start getting what we want. And what the US really wants is the minimum tax part of this deal, so that companies are not sort of going off to tax havents and that they can make sure that they pay their fair share, and that the US isn't isn't

losing tax revenues all around the world. And that's that's that's that minimum tax part of the deal is really that is read the thing that rather than sharing out the pie differently, it's a question of making a much bigger pie for government to be able to fund all the spending that they need to do in the wake of the COVID pandemic. And I noticed, and we can't afford too much time on this, but I noticed that there had been this sticking point and it had come

up the last time I spoke to you. Around Amazon, there's been a lot of focus on which are the companies that will have this sort of sharing of revenues across countries was going to be just the big companies that have lots of profit. An Amazon, it's that frustrating thing that although it sells an enormous amount in every country, it seems to have quite a low profit margin. So

what's going to happen specifically with Amazon. Well, yeah, as as you say the Amazon, it would be it would be sort of crazy to create a global tax system and then say, oh, by the way, Amazon isn't part of this. It just wouldn't make any sense to people who are pushing for such a change of the system. So what they've got to do is find a way, and they're still working on this, is find a way of hitting a target without aiming for it. So they've

got to they've got to score a goal. An Amazon tax. Yeah, they can't call it Amazon tax because otherwise that opens up all the problems about taxing digital companies or targeting certain things. So they're working on a way of of potentially chopping up conceptually Amazon operations so that they can find bits that are really profitable and say, right, we can share out some of that profit for taxing purposes. It's technically tricky because you open a can of worms

that they thought they had closed. We have these G sevens. I always wondered why G seven still existed once they created the G twenty, because the G seven is quite a sort of old fashioned group of companies. We've got the big the Heads of Government summit coming in Cornwall this weekend, but when you look at the countries around the table, it's it's most of the sort of new world is not represented. Obviously, they can't just carve up all these text revenues just for themselves. It's just not

not a very good look. So how is this going to get sold to the rest of the world. How are we going to how is it going to get more sort of global buying. I think that the point we made right the start that actually what's happened at the G seven they resolved disagreement between the US and Europe, and so once that's done, they the rest of what is agreed at the G seven is actually leaves a considered all amount of margin for everyone else to start working on how to resolve how to find solutions to

their problems with this deal. The key really is that G seven has lifted a problem that it had within itself, and so now we can get down to really working on all the exceedingly complicated issues that flow from and I noticed there's some of the issues that have to be resolved pretty big, like how do you define profits? I mean that seems to be there'll be a lot of accountants waiting to hear how they define so that

they can quickly find a way around it. Yeah, yeah, absolutely. Well, the reassuring thing is that the O a CD has been working on all these things for years, right, so they've they've got it all sort of lined up to go and they but it doesn't mean it's not complicated. But a lot of their work has already been done. And also there's a sort of there's a big global shift going on, and that is that actually everyone wants

a deal, even even the big tech firms. Right. What they want is some kind of stable mechanis and they don't want to be hit by tariffs or or very unilateral punitive taxes and different countries. And they think they also recognize and from from a more political perspective, all the governments realize that they have to make this work because they're at the point where they they need to end the race at the bottom because they don't want to they need the money. They need money to be

able to invest in their economies. But also they want to be able to sell the notion of globalization to the middle classes and and and show that they are taking back power from from the winners of globalization. And to do that they've got to they've got to make this work and keep the keep the accountants at bay, if you like. So. I can't help thinking that we will be returning to you at some point in the next few months for the next exciting installment of the

definition of global profit for the corporate minimum tax. But it is actually as you suggest, there's a lot of money involved. It's quite an important point of principle about whether you can make the global economy work work better. Will horrorb and thank you very much, Thank you, Sephanie. Thanks now. If you think of all the changes called by the pandemic, one that does seem to be here

to stay is working from home. Companies such as Vanguard Group and Ford Motor Company are permanently adopting what they call hybrid work schedules. Employee spend some of the week at home and the rest of an office. But what's it going to mean for the rest of the economy? While Stanford University economist Nicholas Blue has been researching the impact of remote working for years, sin since COVID hit, he's become the go to expert on working from home.

He's also co director of the Productivity, Innovation and Entrepreneurship Program at the National Bureau of Economic Research, and he spent the last year surveying tens of thousands of US firms and employees, asking them about their post pandemic work arrangements. US economy reporter Olivia Rockman went to talk to Bloom about the results of that survey and working paper he's just published, co author with his colleague Argent Romany. It's

pretty interesting stuff. Here's just a taste of their conversation. It looks like the suburbs of large cities are the hottest property markets. It's kind of odd that Central New York has done really badly, but the suburbs of New York had dined incredibly well. And then places further away still like if you go to you know, very very upstate New York. I'm thinking like Topeka, Kansas, or you know, Tulsa, Oklahoma, or Hawaii, or you know, Mississippi or Alaska have done fine.

Because the whole U. S. Housing market is it's not like they've exploded, so we think of this is all due to the move to hybrid. So the vast majority kind of sevent firms I've talked, you know, and you see it in all the server data, I'm moving to hybrid, whereby basically most big American firms telling people post pandemic, when you come back, you're going to be coming back probably three days a week typically, and if you grow up from home two days a week, it makes it

more appealing to live out in the suburbs. It should be clear that this is only half of people US. Half of people, typically university grads, is going to go hybrid. The other half but still, you know, on the business premises every day because they're doing more physical manual jobs than meeting customers, etcetera. UM, the richer educated half of mostly the people buying houses. So that's why that's really

impactful for real estate. These folks are moving out. The question as to what the long and impact will be, I personally think it's actually maybe positive. It's not. It's certainly not obviously negative. So to put it in context, the center of American cities have had a forty year boom, so from about to two thousand and nineteen they've been on a continuous upward swing. And so what's happened is COVID is probably unwound, maybe ten to twenty years of that,

but you know, probably no more. So you can think of city centers relatively going to be the still worse in two thousand and five, which is expensive, but that gap has narrowed a little bit. You know, as an economist, it's pretty clear the adjustment it's going to be on many margins, maybe some bohemiums, maybe more artists will come back from the city centers, folks that are driven out.

In fact, maybe people that need to work on the business premises five days a week that were priced out, but actually the very people that should be living in the city centers for return. There was a mention in one of your papers about promotions, and I wonder how some of this ends up, you know, making it harder for some people to to move up, especially let's say, if there's a parent that decides to work from home

five days a week. Yeah, you know, I think you know what so this this kind of to managerial decisions. One is what to do post pandemic, and I would say most firms have gone to hybrid, and that seems like yesterday's decision quite frankly. So sure. But then the big issue is on choice and do you set the thing right at the top the firm what you said, it right at the bottom and let people choose. I've been against setting at the bottom because I think choice

is actually problematic for three reasons. The first to are quick and kind of obvious. What is mixed mode doesn't work very well. So when some people in the office and summer our home, it just leads to a kind of in and an outgroup. So even if evan in the office joins meetings, you know on their own zoom screen, you know, as soon as the meetings over, they get up and go chat. So people are home until left out, and that's almost impossible to deal with. There's a second

issue about if you let people choose. People say that of their two days they work at home, it will be a Wednesday and it will be a Friday. So if you let people choose, you're going to find the office crushed on the Wednesday and empty on It is like tumbleweed blowing through on the Friday, so it's very inefficient and office space. And then the final reason that I'm against choice is the one you raise, which is the most subtle, but it's maybe the most pernicials, which

is they're kind of the two facts us knowing. One is who who would choose to work from home? In our survey we ask people what would you how many days a week would you like to work from home? Post pandemic? And if you look at amongst college graduates, which is well but over half of our workforce, and you look at people with children under the age of twelve, always said more women than men choose to work from

home five days a week. And yeah, that so already amongst graduates with the young kids, there's a big gender dividers to who would choose to work from home five days a week. You hear it for people that disabled people are living far out, etcetera. A group of people who have given the choice to choose, you know, for quite very logical and sensible reasons to work from home more days. So that seems totally sensible. The problem is

the second factors. If you look in the data and working from home in a team where there are other people coming into the office is extremely costly in promotion. So if you let people choose my theories, in some ways the biggest cost in the long run, all the single young men coming five days a week. College educated women with a six year old and an eight year old maybe come in two days a week and six seven years down the road. There's a huge different in

promotion rates. And you know, you have a diversity crisis. And honestly, for companies, you have it like a legal mind field of why justifiable lawsuits. I mean, you know, you would look at the data and you'd see lo and behold, you've got a gender divide in promotion, a disability divide in promotion, maybe an income divicer's wealthy people live near you know stuff that's just the nightmare for companies.

So I have been advising that firms should probably harmonize across the firm how many days people were from home, and try and harmonize which days is in each team in terms of you know, people sacrifices that they're willing to make for flexibility. Did you did you serve anyone about that, Like, oh, I would be willing to take a pig cut for a hybrid model yes, so we we've I have really good data on this, So we

servey people a parish pandemic. If you're allowed to work from him two days a week, would that would you be positive? Neutral? Negative? Then if you're either positive or negative, we ask how much would that be equivalent to in terms of your current salary? And you tell your average across everyone and you get plus and I've done the same seven that you catch is that they come out there six. So basically people value being able to work from home to two days a week at something like

six of salary. So you can think of it as equivalent probably to a pension plan or a kind of a mean healthcare plan. That raises why this is a bit of an inequality issue. Another management change is only half your employees get this, nearer half don't, and the half they get this are typically the higher earning, better educated half that mostly have had a better pandemics have worked home. Well, that's it for this episode of Stephanomics. All be back next week with a lot more from

around the world. This episode was produced by Magnus Hendrick and the segment on the Tokyo Olympics was written by Yuko Takeo and edited by Paul Jackson. Metic special thanks also to William Horrabin, Olivia Rockman, and Professor Nicholas Blue. Mike Sasso is executive producer of Stephanomics and the head of Bluebird Podcasts is Francesco leaving h