Mr. Marc M. Wall, Minister Counselor for Economic Affairs in the U.S. Embassy to Japan, addressed how Japan and the U.S. might achieve a sustainable economic recovery at the AJS Forum on May 24th. In his speech, he stressed the importance of innovation and entrepreneurship.

Mr. Wall began his speech by briefly looking back at the economic crisis and pointing out that, presently, signs of economic recovery are visible; the U.S. has seen GDP growth the past three quarters, and Japan has experienced GDP growth of 4.9% in the first quarter.

Regarding how this economic recovery might be sustained, Mr. Wall explained the U.S. growth strategy. First, the American Recovery and Reinvestment Act incorporated $787 billion in spending and tax cuts. Furthermore, the Federal Reserve and the FDIC attempted to stabilize the housing market and prevent foreclosures. Steps were taken to rebalance the economy through greater investment, fiscal responsibility, and the securement of the financial system. Efforts were also made to rebuild the economy through an overhaul of the health care system, upgrade and improvement of worker skills, and reduction of dependence on fossil fuels.

Mr. Wall stressed that the central initiative is a focus on innovation and entrepreneurship. The standard of living depends on how productively capital and labor resources are used, and the main driver of productivity is innovation. Entrepreneurship, seen in small startup companies, is often responsible for this innovation. The U.S. has thus committed over $100 billion to innovation, education, and technological and scientific infrastructure while also developing a tax credit and attempting to modernize the U.S. patent system which is so important to small startup firms relying on patents to attract venture capital funding.

Regarding how Japan might sustain economic recovery, Mr. Wall enumerated the suggestions from the OECD to Japan concerning productivity. First, irregular workers are paid and trained less which hurts productivity and wage growth, ultimately diminishing consumption. Including these workers in social insurance schemes, upgrading training, and reducing protections for regular workers would provide a solution. Additionally, a stronger competition policy, regulatory reforms, and steps to open to foreign competition are necessary in the service sector, the OECD states.

Next, Mr. Wall pointed out a need to shape a framework which allows companies to profit from trade and investment opportunities. International trade is an important source for productivity growth and offers incentives for innovation. It allows economies to expand output in areas where more productive, enabling higher productivity firms to expand, while also encouraging firms to invest in research. Governments are charged with the duty of shaping a framework which would enable companies to profit fully from opportunities in the pacific region and the world, and APEC provides the centerpiece of this effort. APEC is looking at the long term objective of a Free Trade Area of the Asia Pacific, and the U.S. plans to pursue a trans-Pacific partnership with 7 other economies and any other willing APEC economy, including Japan, Mr. Wall explained.

Lastly, Mr. Wall spoke about the importance of cooperation in the Japan-U.S. relationship. He mentioned that there is a great deal of cooperation already, such as in APEC, foreign assistance, U.N. activities, climate change and clean energy. Stressing that the U.S. and Japan are key partners in building a more stable and prosperous world, Mr. Wall finished his talk reemphasizing the need to pursue growth strategies, particularly economic innovation at home and further economic integration into the global economy.