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In-depth Boosting Japan’s Regions
Regional Revitalization and the Market: An Interview with Kinoshita Hitoshi

How can Japan revive its struggling local economies in the face of depopulation and severed budget constraints? Speaking from long personal and professional experience, Kinoshita Hitoshi calls for a shift from subsidy-dependent community development to a sustainable model driven by private enterprise.

Kinoshita Hitoshi

Kinoshita HitoshiChief executive officer, Area Innovation Alliance. An official of the Cabinet Secretariat in charge of regional revitalization. Graduated from Waseda University and received his MBA from the Hitotsubashi University Graduate School of Commerce and Management. Became active in business-based community redevelopment while still in high school, founding the Shopping Street Network company that he headed until 2004. Currently serves as CEO of Kumamoto Jōtō Management and director of the Organization for Private-Public Partnership Projects. Author of Machizukuri: Deddorain (Community Development: Deadline) and other works.

INTERVIEWER We’ve seen some regional revitalization success stories, but we also hear of cases in which a project intended to revitalize a community ended up contributing to its decline. Can you talk about some of the failures?

Festival City Auga, a multipurpose building that opened in 2001 near Aomori Station as part of a plan to revitalize downtown Aomori, capital of Aomori Prefecture. (Photo: Mainichi Shimbun/Aflo)

KINOSHITA HITOSHI There are countless examples. One notorious case is the Auga building, part of the Aomori Station redevelopment plan that was supposed to revitalize downtown Aomori. It was built at a cost of 18.5 billion yen, with public subsidies covering 8.5 billion of that. Everything proceeded according to plan, yet the facility has operated in the red ever since it opened in January 2001. The local government keeps allocating emergency funding and emergency financing to prop it up, but it’s still not on a viable footing. [Retail facilities on the first to fourth floors were closed indefinitely in February 2017. —Ed.] Instead of spurring revitalization, construction projects like this simply drain the local government’s coffers. Eventually they become highly visible symbols of the area’s economic decline.

In 2014 my Area Innovation Alliance published a report on seven failed local redevelopment projects. We titled it the Gravestone Series. It’s attracted a lot of interest because, while the government is keen on sharing what it calls best practices in regional redevelopment, it never talks about the failures. The fact is that the model of regional development that took shape in the era of rapid growth has become dysfunctional, and unless we face that fact and devise some workable solutions, there’s not going to be any regional renaissance.

INTERVIEWER Can you identify any characteristics that these failed revitalization projects have in common?

KINOSHITA The success stories and best practice in regional revitalization generally owe their success to the efforts of local citizens and businesses, not to some government policy or program. The bureaucrats in Tokyo seek out such “model projects” and honor them with awards and make them the basis for grant programs, which provide funding for similar projects in other locales.

It sounds sensible, but government funding has a way of warping the structure of a project. When a project’s funding is guaranteed by some big program, the project leaders inevitably start basing their decisions on the grantor’s philosophy and policies instead of the profit motive. That’s not a viable formula for regional revitalization. Projects that follow best practices and look very promising at the outset have been known to turn into failures after three years of government grants. Then, that approach to revitalization and the project that pioneered it simply disappear from the agency’s list of best practices and model projects.

A common feature of successful undertakings is that they’re planned and implemented independently, without reliance on any sort of funding other than private business capital. And a common feature of failed regional revitalization plans, to answer your question, is that they rely on non-business capital and as a consequence lose their focus on the bottom line.

The projects we carry out through community development companies all put business considerations first. If they can’t operate at a profit, they go out of business. That’s as it should be. That’s why everyone works so hard to ensure their success.

Each of the projects we looked at [in part 1] is a business investment that makes use of existing assets to yield high returns, while also benefiting the community and contributing to its sound development. A local revitalization project that’s driven solely by a sense of mission without regard to profits isn’t noble or virtuous, it’s just irresponsible.

Nowadays everyone gives lip service to “regional revitalization,” but many of the so-called revitalization projects being undertaken by local governments are exactly the same kinds of boondoggles that have been eating up taxpayer money for decades. Programs that eat up taxes without generating economic returns aren’t going to revitalize declining regional economies. In fact, projects like these are largely to blame for the current situation.

The plight of the regions is not Tokyo’s fault. Year after year the central government has redistributed fiscal resources from Tokyo to the rural prefectures through the local allocation tax and other transfers. If all that money had been invested in economically viable projects that pumped money back into the economy instead of in boondoggles, regional communities wouldn’t be in the fix they’re in today.

  • [2017.07.03]
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  • A Market-Driven Model of Regional RevitalizationHow can Japan revive its struggling local economies in the face of depopulation and severed budget constraints? Speaking from long personal and professional experience, Kinoshita Hitoshi calls for a shift from subsidy-dependent community development to a sustainable model driven by private enterprise.
  • Ama: A Remote Island Community Shows It Can Win the Fight Against DeclineA small island township of just 2,300 residents off the Shimane coast is often cited as a standout example of regional revival. How has Ama, once a depopulated hamlet facing bankruptcy, been able to reverse its fortunes and build a vibrant community that is luring young people from urban areas?
  • Lessons from Hokkaidō: Coping with Rapid Demographic ChangeFour in five municipalities in Hokkaidō are expected to see their population decline by 30% or more over the next quarter century. How are they preparing for such potentially decimating demographic changes? A number of them have come up with unique solutions.

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