Misc

Productivity Research Notes (PRN Series), No. 2609. This note examines how diverging energy cost conditions since the late 2010s have affected industrial activity in advanced economies, with a focus on Germany and Japan. Using high-frequency production indices, it documents a sustained contraction of energy-intensive and trade-exposed (EITE) industries and shows that the impact extends beyond directly exposed sectors. While Germany exhibits pronounced spillovers to non-EITE manufacturing, Japan shows more limited propagation, indicating heterogeneous economy-wide adjustment. Decomposition analysis reveals that these declines are broad-based across core sectors but differ in composition and temporal patterns, with closer alignment to energy price fluctuations in Germany and more linear adjustment in Japan. These findings suggest that recent changes reflect structural adjustment and production reallocation, with important implications for interpreting aggregate productivity dynamics.

Productivity Research Notes (PRN Series), No. 2608. This note examines the implications of Fiji’s 2019 national accounts rebasing for the measurement of value added and productivity. While GDP at market prices was revised downward, a larger decline in net taxes on products led to an upward revision in GDP at basic prices. With compensation of employees largely unchanged, the adjustment increases the measured capital income share. As productivity measurement relies on value added and its income components, such revisions affect growth accounting results. In Fiji, where labor input has grown faster than capital, the revision tends to reinforce the recent improvement in measured total factor productivity (TFP), although part of this may reflect demand-side factors. These findings highlight the importance of accurate tax measurement in national accounts.

Productivity Research Notes (PRN Series), No. 2607. This note examines the implications of India’s 2022–23 GDP rebasing for the composition of final demand and income. The revision leads to a substantial downward adjustment in household consumption and a corresponding increase in the investment share, suggesting that India’s growth has been less consumption-driven and more investment-oriented than previously indicated. The analysis highlights that these changes primarily reflect improvements in measurement—particularly the integration of supply–use tables and reduced reliance on residual balancing—rather than shifts in underlying economic behavior. On the income side, the reallocation within capital income and the decline in value added imply changes in measured income shares, with potential implications for growth accounting and the interpretation of productivity dynamics.

Productivity Research Notes (PRN Series), No. 2606. This note shows that standard productivity measures can misrepresent economic performance in resource-rich economies when natural resource capital is omitted from growth accounting. Using evidence from Saudi Arabia, it demonstrates that mineral and energy resources (MER), particularly oil, are a dominant component of capital and materially affect measured capital services. When MER is excluded, TFP exhibits a pronounced decline from the late 2000s; incorporating MER instead stabilizes the TFP path and shifts its level upward, indicating that part of the observed decline reflects unmeasured resource depletion rather than true productivity losses. These results point to a structural measurement bias in conventional productivity analysis and underscore the need to integrate natural resource capital for consistent cross-country comparisons.

Productivity Research Notes (PRN Series), No. 2605. This note examines how alternative definitions of income and production—particularly the treatment of asset revaluation—affect the interpretation of TFP. Drawing on the framework of Diewert and Fox (2024), it emphasizes that SNA-based and Hicksian income concepts define distinct accounting objects rather than alternative measures of the same construct. It shows that including or excluding asset revaluation shifts the boundary between production and income, thereby changing the economic content of TFP. Removing revaluation effects from production reduces the influence of asset price fluctuations on capital input prices and yields a more stable indicator of production efficiency. The note underscores the need for conceptual alignment in cross-country and intertemporal productivity comparisons, particularly in economies with large asset shares such as land.

Productivity Research Notes (PRN Series), No. 2604. This note develops a bottom-up approach to measuring labor share in economies where compensation of employees (COE) is not available in national accounts, using Vietnam as a case study. By integrating micro-level data on wages, employment, and hours worked, it constructs consistent time-series estimates of labor compensation and factor income shares. The results show that the derived labor share aligns with available benchmark aggregates while remaining conceptually distinct from mixed income measures. The analysis further demonstrates that uncertainty in labor share measurement translates directly into substantial variation in total factor productivity (TFP) estimates, underscoring the importance of reliable labor compensation data for growth accounting in developing economies.

Productivity Research Notes (PRN Series), No. 2603. This note examines the economic implications of a potential Strait of Hormuz closure, emphasizing that the primary risk extends beyond energy price increases to the disruption of Asian supply chains. As global production networks deepen, energy shocks propagate through intermediate goods trade, disrupting downstream manufacturing before price effects become binding. Using cross-country evidence on energy productivity, the note highlights structural differences in vulnerability across Asian economies. It also revisits the role of strategic reserves, arguing that they function as insurance against physical supply disruption rather than as tools for price stabilization. The analysis suggests that policy frameworks may underestimate supply chain transmission risks and over-rely on reserves for managing price pressures.

[Commentary / Wave] “¥1,000 Trillion of Implicit Credit to Electricity” (English translation of an article published in The Denki Shimbun, December 12, 2023) Professor Tsuruhiko Nambu, an economist who has studied public utilities for over half a century, emphasizes the role of electricity as a platform on which transactions take place. By simply accessing an outlet, users can obtain services anytime and anywhere. Capital goods and durable consumption goods that rely on electricity are purchased under the implicit assumption that this platform is continuously available and reliable. In inter-firm transactions, it is common for there to be a time lag between delivery and payment. Such transactions inherently involve the risk of non-payment. The provision of goods and services can therefore be interpreted as an extension of credit to the counterparty. Bank lending is, of course, another form of credit. By the same logic, the acquisition of electricity-dependent assets can be viewed as an implicit extension of credit to electricity providers. If money loses credibility, it is sold off, depreciates, and demand shifts toward real assets such as gold or real estate. If the electricity platform loses credibility, firms will seek cheaper and more stable alternatives—relocating production abroad or substituting imports for electricity-intensive goods. Firms unable to do so will be forced into costly self-provision, such as on-site generation or battery storage. The resulting loss of production opportunities and misallocation of resources would inevitably lead to prolonged economic stagnation. Many assets accumulated today would become entirely inoperable without electricity, while others would suffer partial dysfunction. Infrastructure such as highways and ports would also face operational constraints. Inventory assets, including refrigerated raw materials and products, would lose their value. Dependence on electricity is not limited to tangible assets; it is even more pronounced in intangible assets, which have expanded rapidly over the past quarter century. Although it is neither practical nor feasible to directly measure the scale of credit extended to electricity through surveys or experiments, one can approximate its magnitude using highly disaggregated capital stock statistics. Based on the author’s capital database, which distinguishes over 170 asset categories, the present value of assets held under the assumption of reliable electricity supply amounts to approximately ¥1,000 trillion. In other words, the Japanese economy currently embodies roughly ¥1,000 trillion of implicit credit to electricity. In manufacturing, which accounts for 23% of this total, around 80% of fixed asset value (excluding land) depends on the availability of electricity. In services, the corresponding figure is 67%. Household-owned assets represent 12% of the total electricity-related credit, with 35% of their value reliant on electricity. Even in non-industrial infrastructure, around 30% would suffer some degree of functional impairment in the absence of electricity. Historically, the management of this implicit credit has been entrusted to private utilities under a cost-of-service regulatory framework. Ongoing liberalization policies have sought to unbundle the values traditionally delivered as a package—such as reliability and decarbonization—and to create separate “markets” for each. Emerging distortions have been addressed in an ad hoc manner. Given the enormous scale of implicit credit, however, private operators may exploit institutional gaps to earn profits exceeding socially appropriate levels. The fundamental role of electricity as a public utility is once again being called into question. Government policies are also constraining asset utilization through stricter energy efficiency regulations. While new products may benefit from technological improvements, opportunities for efficiency gains in existing assets are limited. If policies—such as energy-saving mandates or renewable energy requirements lacking sufficient technological grounding—effectively restrict the operation of existing assets, the risks embedded in this vast stock of implicit credit will materialize. Policies that undermine ¥1,000 trillion of implicit credit are eroding investment demand and weakening the engine of productivity growth in the Japanese economy.

Productivity Research Notes (PRN Series), No. 2602. This note examines the potential impact of artificial intelligence (AI) on Japan’s productivity under a technology implementation scenario to 2040. Using a growth accounting and general equilibrium framework, it evaluates how the diffusion of AI-related technologies across sectors—together with complementary investment, institutional reform, and stable electricity supply—affects total factor productivity (TFP) and economic growth. The results suggest that productivity gains arise from the combined implementation of multiple technologies rather than a single innovation, with manufacturing playing a central role in driving economy-wide efficiency improvements.

Productivity Research Notes (PRN Series), No. 2601. This note examines revisions in purchasing power parity (PPP) estimates based on ICP benchmark rounds (2005–2021) and their implications for cross-country level comparisons in Asia. It highlights the sensitivity of income rankings and relative price levels to benchmark revisions.

The Takaichi administration has so far maintained the conventional policy approach of pursuing both stable energy supply and decarbonization simultaneously, utilizing the GX budget framework. However, this strategy carries a substantial risk of producing outcomes that run counter to the administration’s stated objective of achieving a “strong economy.” For decarbonization policies to be compatible with a strong economic foundation, two conditions are necessary: internationally harmonized allocation of emission burdens and substantial cost reductions in decarbonization technologies. At present, neither condition is satisfied. As a result, carbon leakage has accelerated the hollowing out of domestic industry, and production in energy-intensive industries in both Japan and Germany has fallen by roughly 20 percent compared with 2018 levels. Moreover, decarbonization policies have begun to distort the electricity system itself. The consumer surplus historically generated by nuclear power is increasingly diverted to subsidize renewable energy integration, thereby eroding the very value that nuclear power originally provided—reliable and low-cost electricity supply. Given these developments, it is necessary to apply the precautionary principle to the significant and potentially irreversible risks associated with continuing the current GX policy trajectory. A strategic shift away from existing decarbonization policies should therefore be considered.

Backed by the price competitiveness of the manufacturing sector, it was only some 20 years ago that more than a few economists held the expectation that the Japanese economy would soon surpass the United States in per-capita GDP or labor productivity. In the last decade of the 20th century, the United States achieved improvements in labor productivity through capital deepening in both IT hardware and software, as well as through technological progress itself, and succeeded in the industrialization of information technology. At present, measured against the market economy as a whole, Japan's labor productivity is estimated to lag behind that of the United States by approximately 30%. This project has worked to construct an internationally comparable productivity database and to examine national accounts frameworks that enhance such comparability, with the aim of analyzing the factors behind this competitive disadvantage and its industrial sources.

At the start of this year, I visited the Takahama Nuclear Power Plant. Achieving the government's target of a 20–22% share of nuclear power generation by 2030 requires the restart of plants with enhanced safety measures and the extension of their operating periods, but at the time of my visit the plant had been shut down by a provisional injunction from the Otsu District Court following its restart. The rise in electricity prices and supply uncertainty since the earthquake disaster have been factors suppressing domestic investment and shifting electricity-intensive production overseas, and restoring affordable and stable electricity supply would improve investment opportunities in regional economies. Around the same time, I visited Berlin. The meetings of the Japan-Germany Energy Transition Council were charged with enthusiasm for the Energiewende — the great transformation — aimed at raising the share of renewables, already expanded to over 30%, to 50% by 2030 and 100% by 2050. The driving forces behind this are the decision to phase out nuclear power by 2022 in the wake of the Fukushima accident, and the challenge by citizens to build a decentralized system in opposition to monopolistic utilities. Germany's electricity-intensive companies benefit from wholesale electricity prices made cheaper by the large-scale introduction of renewables, with exemptions from the surcharges, while the overall cost increase falls heavily on household electricity bills. Yet criticism of the status quo falls flat before German researchers. One senses a positive resolve that the challenges should be overcome through the research and development they necessitate and through the expansion of market mechanisms. The promotion of renewables has reportedly become a new arena of challenge for retirees in their later years, and through collaboration with younger generations it has begun to function as a catalyst for value creation. Even the taxi driver on the way back smiled and said, "After seeing Fukushima, Germany decided to phase out nuclear — we knew we'd have to bear some burden." The economic trajectories of Japan and Germany in recent years stand in sharp contrast. Since 2000, Germany's average annual growth rate has exceeded Japan's by roughly 0.4 percentage points, with half of that strong performance supported by expanding external demand. The IMF has estimated that the euro undervalues Germany's effective exchange rate by 10–20%, which — drawing an analogy to Japan — is equivalent to maintaining price competitiveness over the long term through a yen depreciation to around 125 yen to the dollar. Japan, by contrast, has seen the return on domestic investment continue to languish, and the gap in productivity relative to leading economies has widened. The expansion of inefficient investment, such as in high-cost renewables, raises serious concerns about depressing future returns, and a virtuous cycle is needed — one in which investment opportunities with high returns are selected and linked to the creation of new investment opportunities. Affordable and stable electricity supply is an indispensable foundation for growth. The respective challenges of Japan and Germany in energy transition reflect differences in their economic environments. For Germany, where labor-management coordination has held down wages, it is desirable to seek a form of transition that expands domestic demand even if returns are modest. Japan's current circumstances, however, are unlikely to permit the same approach.

The EU has placed Efficiency First — improving energy efficiency as the top priority — at the core of its energy policy, targeting a reduction in energy consumption of 27–30% compared to a business-as-usual scenario by 2030. Germany has set an ambitious target of reducing energy consumption by 50% by 2050 (relative to 2008) alongside a major push for renewables, claiming this will in fact strengthen industrial competitiveness and contribute to economic growth. Germany's target corresponds to an average annual reduction in energy consumption of around 1.5% from 2015 onward, requiring a sustained average annual improvement in energy productivity of around 2.5% — roughly one percentage point above recent actual performance. The term "energy conservation," born in the era of the oil shocks, carried from the outset a character in which efficiency improvement was difficult and dependence on reductions in activity levels was inherent. During Japan's high-growth era, vigorous capital accumulation embodying energy-saving technologies produced substantial improvements in energy productivity, but once the catch-up process was complete, further efficiency gains came to require greater inputs of labor and capital. Improving productivity in the single dimension of energy thus imposes a burden in the form of declining labor and capital productivity, and when energy conservation is pursued excessively, the latter burden can exceed the former, reducing overall productivity. A second problem is the fallacy of composition. Improving energy productivity reduces energy demand, which through lower market prices, enhanced competitiveness, and new production expansion tends to push up aggregate energy consumption — the rebound effect known as the Jevons paradox. In recent years, some EU countries have shown a declining trend in energy consumption itself, but the underlying causes require careful examination. Energy productivity as observed at the macro level is a measure that incorporates changes in productive structure. Germany achieved an efficiency improvement of 1.5% per annum between 2000 and 2015, but when measured with industrial structural change controlled for, true energy productivity improvement falls to just 0.4% per annum. This means that more than two thirds of the apparently observed improvement in energy productivity is explained by structural changes such as the contraction of energy-intensive industries and the expansion of the service sector — not by improvements in energy intensity at the level of individual firms or production processes. The conditions in which cheap energy-saving opportunities remain abundant can no longer be assumed, and the marginal cost of reducing consumption by one additional unit is indeed rising. Over this period, German households bore a disproportionately large share of the costs of renewable energy promotion and faced rapidly rising electricity prices, while electricity-intensive companies were exempted from these burdens. Whether such preferential treatment constitutes an acceptable level playing field relative to countries such as Italy that have no such exemptions, and whether energy-intensive industries can be expected to pursue conservation when their electricity prices are in fact falling, raises serious questions about the internal consistency of current energy policy.

"With this much power being generated on a sunny day, electricity prices should come down, shouldn't they?" — the smiling remark of a student reveals a fundamental misunderstanding of the FIT system (Feed-in Tariff for renewable energy). Sunlight pouring down may be a gift of nature, but converting it into electricity requires equipment installed under the FIT scheme, and the costs of that equipment are imposed on electricity consumers. Even though solar panel module prices were expected to fall over time, the decision to accelerate their deployment has produced a hefty bill that will be passed to current and future consumers. What has the FIT system, introduced in October 2012, actually delivered for the Japanese economy? Before the system was introduced, the government estimated that total purchase payments in its fifth year of operation would amount to around 500 billion yen annually. By fiscal 2017, that figure had expanded to 2.7 trillion yen, and is projected to reach 3.1 trillion yen in the current fiscal year — already equivalent to two thirds of the nation's entire general road construction budget. In the government's projections drawn up in 2015, the restart of nuclear plants was expected to reduce generation costs by around 4 trillion yen per year, providing the financial basis for promoting renewables and achieving a low-carbon, diversified energy mix without raising electricity prices. That anticipated funding base, however, is already close to running dry. Moreover, the FIT system has done nothing to strengthen the competitiveness of domestic solar panel manufacturers: the domestic content rate for solar cells and modules, which stood at around 80% before the system's introduction, plummeted to roughly 30% shortly afterward, and high import dependency has remained essentially unchanged to this day. Did the demand created by the FIT contribute to a fall in solar panel prices? In 2008, The Economist offered a scathing critique of Germany's FIT promotion. Despite being one of the countries in the world with the least solar irradiation, Germany's aggressive pursuit of the FIT drove up silicon prices, making adoption more difficult in countries with far greater solar resources. After Germany strengthened its FIT in 2004, silicon prices rose by nearly double, and the retail price of solar modules — which had been falling at an annual rate of around 4% — turned upward in 2004. When Japan introduced its FIT in 2012, the rapid surge in Japanese demand came to the rescue of Chinese manufacturers sitting on large surplus production capacity, and export prices to Japan actually rose. In the first quarter of 2013, Japan's import prices shifted to an annualized increase of 15%. Conversely, when the direction of amendments to the FIT law became clear in the third quarter of 2016, import prices recorded a sharp annualized decline of 50%. Setting high purchase prices exerts an upward pull on market prices, and what is needed for healthy market formation is not hasty deployment but sustained, measured demand expansion. The cost of renewables is increasingly dependent on domestic services such as construction and distribution rather than equipment itself, and high service prices reflect Japanese consumer preferences — meaning that even if other countries come to enjoy cheaper renewables, their conditions are not comparable to Japan's. The government has been shifting its focus toward the use of storage batteries, hydrogen storage, and related technologies, but it must not forget that the attractive future scenarios being sketched rest on a foundation of very substantial cost burdens already accumulated.

This article examines Bhutan’s hydropower-led growth model and evaluates its sustainability and underlying economic risks. Bhutan has achieved rapid economic growth while relying almost entirely on renewable energy, and has often been regarded as a model of green growth. Hydropower development plays a central role in this model, generating substantial export revenues through electricity sales to India and forming a major source of government income. However, the construction of productivity statistics and subsequent analysis reveal that hydropower-driven growth does not necessarily translate into improvements in overall economic efficiency. Although labor productivity has increased significantly, this growth has largely been driven by massive capital accumulation, while improvements in total factor productivity (TFP) remain negligible. Moreover, hydropower construction generates limited domestic employment, and the capital-intensive investment structure has led to distortions in resource allocation. Additional structural vulnerabilities arise from Bhutan’s heavy dependence on electricity exports to India, the peg of its currency to the Indian rupee, rising construction costs, and environmental uncertainties such as changes in Himalayan water flows. While Bhutan’s hydropower-led development strategy has delivered rapid economic growth in the short term, it also exposes the economy to long-term risks related to capital inefficiency and a lack of industrial diversification.

The government is aiming, with an eye to 2030, to achieve energy conservation at the pace Japan realized in the aftermath of the oil shocks. Yet ambitious energy-saving targets do not necessarily imply their own feasibility. As other instruments — declining nuclear dependence, the scaling back of coal-fired generation, and surging electricity prices driven by the push for renewables — have reached an impasse, energy conservation has returned as the central policy challenge. There are expectations that energy saving will enhance corporate competitiveness and drive economic growth, but that was the story of an era when cheaply available technologies were abundant. Today, the costs required to achieve further energy savings frequently exceed the savings in capital and labor they generate. Subsidy-driven promotion is expedient for both government and industry, but it lowers the social return on investment. The purpose of this paper is to draw lessons from historical experience for the efficient pursuit of energy conservation. In the years from 1973 to 1990 following the first oil shock, Japan's energy productivity improved at a remarkable annual rate of 3.1%, a period known as the "golden age" of energy conservation. This figure, however, contains distortions inherent in macro-level measurement. Because energy-intensive industries such as steel and chemicals contracted relative to the rest of the economy after the oil shocks, energy conservation tends to be understated for the high-growth era and overstated for the golden age. According to the author's estimates corrected for industrial structural change, the true rate of energy conservation improvement during the high-growth era is revised upward to 2.0% per annum, compared to the apparent rate of 1.4%. This reflects what economist Gerschenkron identified as "borrowed technology" — technological progress enjoyed unintentionally through investment in imported machinery and equipment from abroad — and represents "unintentional" energy conservation. Conversely, the true rate of improvement during the golden age is halved to 1.5% per annum from the apparent 3.1%, and a comparison of the periods before and after the oil shocks reveals that "unintentional" energy conservation in fact exceeded "intentional" conservation. From 1990 to 2008, the apparent rate of energy conservation improvement slowed sharply to 0.8% per annum, with three quarters of that slowdown explained by the relative contraction of energy-intensive industries. The true rate of conservation improvement, after correction, was a mere 0.1% per annum. Despite the strengthening of energy-saving measures including the entry into force of the Kyoto Protocol, and despite surging crude oil prices, virtually no real progress in energy conservation was achieved. Over the same period, the United States kept its slowdown in conservation improvement limited and narrowed the productivity gap with Japan. The first lesson is that the pace of energy conservation is constrained far more by the availability of cheaply usable technologies than by rising energy prices. In the early stages of growth, energy conservation is naturally embedded through production expansion and capital reinvestment. The effect of energy price increases in inducing conservation is, however, already limited, and pricing energy consumption and CO2 emissions may prove to be an inefficient policy instrument. The second lesson is that even without policy-driven "front-loading" of energy conservation, when the time for capital reinvestment arrives, available energy-saving technologies will be embodied in new machinery and incorporated as a matter of course. As the Japan-U.S. comparison demonstrates, even when Japan takes the lead in adopting the latest high-cost technologies, once those technologies become cheaper, they will naturally diffuse through reinvestment in other countries. Within twenty years, machinery reaching the end of its economic service life will be replaced by capital goods embodying energy-efficient technology. The pursuit of energy conservation now has a history of nearly half a century, and the race has become one of diminishing returns. The value of expending large resources for a modest lead is limited, and the contribution to global greenhouse gas reduction remains marginal. High energy cost burdens also serve as a guarantee of high returns in research and development of future technologies. What is now required is a fundamental reframing of the time horizon for energy conservation promotion — shifting from a year-by-year perspective to one measured in decades.

Over the past thirty years, the Korean economy has achieved the upgrading of its manufacturing sector and improvements in productivity by drawing on affordable electricity supply as a source of competitiveness. The foundation for this has been an energy policy centered on nuclear power and coal-fired generation. Nuclear power, which began commercial operation in 1978, expanded rapidly, reaching a generation share of 53% by 1987. With nuclear and coal together accounting for more than 70% of electricity demand, industrial electricity prices fell to roughly half those of Japan — a substantial competitive advantage. In the 1970s there was no significant gap between Japanese and Korean electricity prices, but the rapid expansion of nuclear power brought Korean prices down to half Japan's level by 1987. Against this backdrop of affordable electricity, the Korean economy has exhibited two defining characteristics. The first is a rapid structural transformation from light industry to machinery manufacturing; the second is the swift improvement in macro-level productivity that accompanied it. In the early 1980s, Korea's total factor productivity was only about 60% of Japan's, but rapid catching-up narrowed the gap to roughly 15% by 2011. Affordable electricity supply was the cornerstone of the productivity improvements needed to raise per capita income to the next level. From 2011 onward, however, a turning point arrived. The Moon Jae-in administration pursued policies of phasing out nuclear power and coal, advancing the closure of aging coal-fired plants and scrapping plans for new reactor construction. Nuclear plant utilization rates fell from over 90% to 66% in 2018, and the industrial electricity price gap between Japan and Korea narrowed to 30–40%. Korea Electric Power Corporation swung to an operating loss, and the productivity gap between Japan and Korea, after peaking in 2011, has begun to widen again toward nearly 20%. This situation mirrors Japan's own experience twenty years ago. A reckless energy transition undertaken against a backdrop of rising cost burdens on coal-fired generation due to air pollution countermeasures, and the advancing challenge of Chinese competitors, will significantly undermine Korea's medium- and long-term growth capacity. Japan-Korea cooperation on shared challenges — including strengthened nuclear safety measures, the nuclear fuel cycle, and final disposal — may well be the path toward guiding the Asian economy to prosperity.

The Oi Dam and power station on the Kiso River system were completed by Momosuke Fukuzawa at the end of 1924. This great undertaking — achieved by harnessing imported American technology and capital to tame the torrential Kiso River, long deemed "impossible to control" — continues to create enduring value nearly a century later. Yukichi Fukuzawa, Momosuke's father-in-law, introduced the advances in hydropower technology being made in Britain and Germany in his work "Jitsugyo-ron" (On Business, 1893), illuminating a path by which Japan might develop its productive industries. He observed that Japan's "swift currents and waterfalls, a heaven-sent treasure," could be transformed into productive assets, and presciently identified the utilization of electricity — then "in the midst of its development" — as "a matter of truly paramount importance for an industrializing society." Just as Sam Schurr called electricity the "mediator of technological progress," electrical energy was indispensable to the productivity improvements and economic growth of the twentieth century — and Fukuzawa had already seen this essence a hundred years before. Fukuzawa's assessment was not mere optimism but was grounded in analysis. He reasoned that nations without access to hydropower and dependent solely on coal-fired generation could not hope to compete on price with mountain countries endowed with the natural force of swift rivers and waterfalls, foreseeing that hydroelectric power could be substantially cheaper than alternative means of generation and could make a major contribution to improving Japan's international competitiveness. Momosuke was a singular entrepreneur who translated insight into action. Alongside hydropower development, he established a specialty steel manufacturing company using electric arc furnaces as a means of utilizing surplus power, and constructed transmission lines to the Kansai region — a vision that extended to the public benefit of society as a whole. From the Meiji era through the early Taisho period, the emergence of large-scale electricity consumers transformed the structure of power supply through the market, shifting from small-scale, fragmented supply responding to dispersed lighting demand toward the pursuit of economies of scale in large-scale generation and bulk transmission to consumption centers. There are two kinds of infrastructure formation. The first is that which is called for once bottlenecks in the economic and social system have become conspicuous. The second is the "business-creating" type — one that envisions a future capable of dramatically improving the prosperity and efficiency of economic society even before direct demand has materialized, making new private enterprise possible. The latter is far more difficult, and cannot be achieved without the fortunate convergence of superior insight, entrepreneurial spirit, and historical circumstance. How would Fukuzawa and Momosuke view today's Japanese electricity market? Was electricity liberalization induced by structural changes in demand or technology? Does the promotion of solar power through the feed-in tariff system for renewable energy encourage the utilization of untapped resources in which Japan holds an advantage, and thereby improve the international competitiveness of its industries? One imagines that Fukuzawa would point to the weakness of logical justification in both cases and argue against reckless haste, while Momosuke would show not the slightest interest in entering the new power retail or mega-solar business. The rapid accumulation of high-cost solar generation has not become business-creating infrastructure, and has left the public with liabilities exceeding the value it will generate in the future. Where, one wonders, would Momosuke's gaze turn today?