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Editors Interview/ Special Dialog

Jay Light (US, Dean, Harvard University Business School) and
Heizo Takenaka (Professor, Keio University)

How They Grow, the Leaders Who Guide the Age

Leading paragraph:
Jay Light, of Harvard Business School, which boasts a 100-year history, is visiting Japan.
A dialog was held with Mr. Heizo Takenaka, who has also taught at Harvard. The two
men spoke about nurturing the strong leaders who lead the vanguard of their age.
(Hosted by Yoshiya Sato, Editor in Chief, Nikkei Business)
(Interview originally published in J apanese)

Host:
Since the US subprime (home financing aimed at individuals with poor credit) bad loan surfaced last
summer, finance and capital markets around the world have been unsettled, and the environment that
business exists in is becoming harsher. Rising resource prices also fuels concern.

Light:
The current US capital market is right in the middle of the most serious crisis in 30 years. Although the
subprime problem was the original spark, the fire took hold in other capital markets in the US and in
various markets overseas, and has developed into a worldwide financial crisis.

This crisis, combined with rising commodity prices (especially for food, beverages, and energy
resources) has created extremely risky conditions for central banks around the world. On the one hand,
they want to lower interest and free-up finance in order to ameliorate the damage caused by the financial
crisis; on the other hand, they want to raise interest rates to prevent inflation from spreading stuck on
the horns of this dilemma, they cannot move either way.

These are the conditions which threaten the entire world economy. However, the damage to the world
economy has not yet become really apparent. Thats because while the consumer confidence index (an
index of US consumer psychology), have fallen to a 30-year low, but in fact, Americans' consumption
has not cooled down.

J apans Narrowing Policy Choices

Takenaka:
The combined effect of financial confusion and rising prices for primary produce have produced a look
of stagflation, where bad economic conditions and inflation occur at the same time. On that point, I
agree.

However, looking at various predictions for the US economy, it looks as if there will be around 1.5%
growth for this year. Despite the harsh conditions created by the subprime problem, it looks to be pulling
through. I sense the fundamental strength of the US economy.

On the one hand, it is possible that the effects of rising primary produce prices may continue over the
medium-term. Although part of the increase is due to the expectation of increased demand from BRICs
(Brazil, Russia, India, China), but much will depend on supply-side problems, such as oil-producing
countries failing to increase production, or agricultural-export countries failing to invest their earnings.

It is not simply a matter of inadequate supply causing inflation, as occurred during the oil shock[s],
because rising prices reduce J apans purchasing power, and therefore demand also drops. There are no
quick policy fixes for conditions like these. The only options require a great deal of patience such as
increasing supply capacity over the medium-term, and saving energy.
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Light:
I believe that the cause of the current rise in resources prices is the sudden expansion in energy demands
by newly developed countries. Expansion caused by investment by investors is one aspect, but increased
demand is at the root of it. It is not a speculation bubble but based on real demand, and that means that
stopping prices from rising is not easy.

The most serious effect of rising resources prices is no doubt the shift of enormous amounts of wealth
from developed countries to resource-exporting countries such as middle-eastern countries, and Russia.
This is [important] because increased power in the hands of resource countries will change the global
politico-economic balance of power. In terms of political concerns such as security, this is a situation
which should disturb developed countries.

Takenaka:
In that environment, the worry is that world nations will lack solidarity and it will be difficult to achieve
international cooperation. Actually, at this years Davos Conference (annual general meeting of the
World Economic Forum), 200 participants voted on the greatest risk to the world economy. More people
cited inability to achieve effective international cooperation when problems arise, rather than the
subprime problem or rising oil prices.

In the background is the inadequate performance of international organizations such as the UN, and in
addition, leadership can no longer be expected from the US as it is at present. However, the importance
of cooperation remains undiminished. A wide range of participants, including not only the UN, but
private corporations and NGO (non-governmental organizations) work together. I believe that we are in
the process of building new cooperative structures such as these.


The rise of resource-exporting countries is changing global power
structure the issue is whether international cooperation will stand or
fall

Host:
In this process, the question is whether government policies can win the cooperation of the people.
Success in introducing policies will no doubt be an important point.

Light:
Yes. I think that the most skilful way for governments to use economic policy to solve problems is when
they take care to offer incentives which motivate private corporations to involve themselves seriously.

The problem is, when politicians make their popularity with the people a priority, they tend to produce
policies which detract from corporate vigor. For example, two US presidential candidates argue against
free trade. Were not going to export jobs, and so on.

Thats obviously an inaccurate statement because the future of the world lies in encouraging
international cooperation and trade between nations. Naturally, if both candidates became president, I
believe that they would pursue correct policy.

Takenaka:
The US and J apan can both learn from one anothers experiences regarding relationships between
government and corporations.

For example, the J apanese government and corporations have a good shared understanding of
environmental issues. Even without the government strengthening regulations, corporations had the
same understanding of the issues as the government, and have developed the best energy efficiency in
the world. However, the J apanese government sometimes attempts to use industrial policy to intervene
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directly in the activities of private corporations. That is a problematic point,

The US has successful cases such as Silicon Valley. The US government makes no direct interventions
in Silicon Valley. They simply carried out regulations reform and taxation reform to provide
infrastructure to facilitate private corporate activity. Silicon Valley was born through corporations
making extremely good use of this [infrastructure].

As we can see, the US and J apan both have their best-practice areas, and we can learn about these from
one another.

Five Conditions to Being a Leader

Takenaka:
An interesting phenomenon is occurring around the world at present, in relation to the US presidential
elections. While trying to strengthen economies on the one hand by taking advantage of market
mechanisms in order to win out in global competition, people are also working solidly on environmental
protection. We are now seeing leaders with that kind of thinking, leaders such as Nicolas Sarkozy of
France, or Lee Myung-bak of Korea. You could probably say that J apans former prime minister,
J unichiro Koizumi, was another example.

I believe that Prime Minister Yasuo Fukuda is also demonstrating strong leadership on environmental
problems. At the Toyako, Hokkaido Summit in J uly (G8 Leaders Conference), he put forward the
"Fukuda Vision for numerical goals and the establishment of a market in CO
2
(carbon dioxide)
emissions.

The problem for leaders of this type is that measures to strengthen the economy, such as liberalization of
regulations, or privatization, will always attract political resistance. Former Prime Minister Koizumi
faced this, Prime Minister Sarkozy, and also Prime Minister Lee also face strong opposition which has
put them in difficult situations.

This means that popularism entwined with elections rears its head in democratic countries. Pursuing
popularist policies inevitably damages the economy. Repeated cycles of this is causing suffering in every
democratic nation.

Host:
What kind of national leaders and corporate managers are we looking for today?

Light:
The question is how to train up leaders who contribute to the world. That is a problem that has always
concerned the Harvard School of Business.

I believe that the qualities a leader needs can be summed up in 5 main points. None of them are the kind
of thing that professors can teach in lectures. It only grows through a complex process of intellectual
growth.

The first point is decision-making ability. Looking at a complex system, and understanding what the
essential issues are. What that takes is not [knowing the] answers, but posing the right questions.
Prioritizing the issues, and thinking about which is the most important issue. Moving forward in
complex and ambiguous conditions, even when there are few clues to be found. And being able to tell
where you need to dig deep in order to pose the right question.

The second point is equipping yourself with an entrepreneurial point of view. Everybody has problems
and restrictions which hamper them in achieving their goals. Looking again at conditions with fresh eyes,
as an entrepreneur, and searching out chances that others dont see, enables you to turn those restrictions
into something else. Thats how you change the way you play the game.

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The third point is the ability to communicate. It is especially important to listen carefully to what other
people say. The people you talk to may not come from the same culture as you. The point is to grasp
what a person from another culture is trying to say, what his or her real meaning is. Without that, I doubt
if you will be able to get the other person to understand your thinking.

The fourth point is the need to understand an individual's or a corporations sense of values, and
translate them into long-term goals. If you keep your eye constantly on the long-term goal, without
being distracted by short-term goals or losing sight of the long-term in ambiguous conditions, I believe
you will surely achieve it.

My last point is this: the courage to act. Think what you should do, communicate with those around you,
and work out what it is that you really value. Then act on those things.

At our School, we use the Case Method to put them into action. Three times a day, 90 students split up
into groups, and discuss and analyze the conditions in a case, pose appropriate questions, and think
about how to change the game, what values should be pursued, and what needs to be done today. That is
the essence of our management education.

Strong universities are a prerequisite for training up leaders. They
will continue to change with the times


Takenaka:
I agree with all five of the points you just made. I would like to add a further three points in nurturing
strong leaders.

My first point is that in order to train up leaders, we need strong universities. A country which has strong
universities produces many [future workers] who will become leaders, and this enables the creation of a
country with a strong economy. To put it in stronger terms, I believe that is how the world is these days.

The US News and World Report releases rankings for universities around the world each year, and
Harvard tops the list in many categories. On the other hand, sadly, only four or five J apanese universities
make the top 100 universities. The top J apanese university, Tokyo University, ranks no higher than 17
th
.

Considering that J apans GDP is the second-largest in the world, Tokyo University should rank in the top
five universities in the world. Ive said so for some time. It will require universities to compete and
improve their competitiveness.

One remedy which I propose is privatizing Tokyo University. At present, subsidies are paid in
automatically from the government, so the competition principle does not kick in. Thats [one] reason to
privatize, and change over to a system where research needs to produce results, or else funds are not
forthcoming. That would force [the university] to compete.

Im sure that the only public university ranked in the top ten is University of California, Berkely, and all
the others are private. Starting with Tokyo University, we should expose J apanese universities to the
winds of competition.

Work on Leadership All Your Life

Takenaka:
The second point is to use universities to create a system for re-educating adults. The proportion of
people aged 25 and over in graduate school is very much lower in J apan than in the US. Changing this is
also extremely important in terms of training up political and industrial leaders.

My third point is similar to one raised by Dean Light changing the content of education from receiving
past knowledge to sharpening creativity. That kind of education takes money. However, tuition fees at
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J apanese universities are too cheap. J apan should recognize the value of spending more money on
education.

Light:
There is one thing I would like to study, concerning a point that you raised. That is, the point the training
of strong leaders is a long-term process that lasts a lifetime. In fact, half our educational program is
aimed at people aged 35 and older. For example, executives meeting together and learning about best
practice from one another. Leadership can be improved through this kind of experience.

As business is globalized, and the pace of change gathers speed, it becomes even more important to
continue learning our whole lives long. Expectations of universities are rising, too. Universities need to
change if they are to meet those expectations.

Harvard Business School celebrated its centenary this year, but we are certainly not content to be
satisfied with the status quo. We will continue to review our curriculum so that we can respond to
changing times. We will continue to change, we will not stand still because I believe that that is where
the strength of our Business School lies.

~Sidebar~
What about changing to a system where people temporarily took a job after graduating high school, and
gaining an awareness of what it means to make a place for yourself in society, and then studying what
you need to learn at university I have argued for Universities for Adults in the past. It would avoid
the kind of moratorium type of entry to graduate school by students wanting to avoid joining adult
society, and clearer goals would save corporations from having to re-train staff internally.

This feeling grew even stronger as both our guests touted the importance of higher education for adults.
Apparently, the Harvard School of Business faculty interview top corporate leaders from around the
world, adding an astounding 400 new case studies to teaching resources each year. They support their
competitiveness with active practices that allow them to laugh at the old universities re-hashing
through their olden days text books.


Profiles:
Jay O. Light
Born 1941, age 66. Graduated Cornell University (US) in Engineering Physics, 1963, and worked for
the J et Propulsion Laboratory (US). He took his PhD at Harvard during the 70s, and joined the faculty
of the School of Business. Director of Investment and Financial Policies for the Ford Foundation,
1977-79. Acting Dean of the Harvard School of Business in 2005, holds present position as of 2006.

Heizo Takenaka
Born 1951, age 57. Graduated in economics, Hitotsubashi University, 1973, and entered the
Development Bank of J apan. Taught as guest associate professor at Harvard University in 1989, and in
1996 became a professor in the Public Policy department, Keio University. In 2001, he entered J unichiro
Koizumis cabinet. He served first as Minister of State for Economic and Fiscal Policy and Financial
Services, and later as Minister of Internal Affairs and Communications. Since 2006 he has headed Keio
Universitys Global Security Research Institute.

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