The Global Economy in Turbulent Times

CHAPTER 114 Venture Capital Initiatives to Boost Entrepreneurship¹

I attended the 22nd meeting of the Asian Shadow Financial Regulatory Committee (ASFRC) held in Sapporo, Japan, last month (October 2013), hosted by the University of Tokyo. The group comprises university dons and bankers whose main mission is to take a considered analytical position on current policy issues of public concern, especially in the area of monetary economics. Its focus this time was on corporate venture capital (VC) initiatives in Japan, viewed as a key element of the Abenomics strategy to stimulate long-term economic growth. This is important because according to a recent survey of investment as a proportion of gross domestic product (GDP) by venture capital firms, Japan ranked 35th out of 37 countries surveyed, well below China (11th) and South Korea (14th) and behind many other Asian nations.

In a sense, poor VC initiatives in Japan have become an embarrassment besides being a drag on growth. Despite its high domestic savings, Japanese financial institutions traditionally avoid funding risky businesses—just simply being risk averse. Even its taxation regime is hostile toward the use of stock options (sweat equity) as an incentive. This lack of risk capital and a robust VC community in the face of a business environment that discourages the taking of risks has led to falling competitiveness and productivity so detrimental to sustainable income growth. Japan badly needs to aggressively develop VC ...