Now may be the time to recalibrate Okinawa’s economy radically

The recent mayoral election in Nago, Okinawa, near the planned replacement site for the Futenma US Marine Corps airbase, was more about money than bases.

A shrinking pool of older voters, motivated by anti-base resentment, backed the losing incumbent, Susumu Inamine, while a majority of younger voters, motivated by economic issues, supported the nominally “pro-base” candidate, Taketoyo Toguchi.

This is important.

When Inamine was elected in 2010, Tokyo in essence said, “If you don’t cooperate, we will cut subsidy money.” Supposedly, Inamine responded, “Fine, I don’t want your money.” By 2017, that “lost” amount came to US$135 million.

What changed this time is that, using Internet and social networking, the young working population said “enough is enough, we need money” – for daycare and other public support – and took control. Since then, Tokyo has indicated that it will restart financial aid.

However, direct subsidies create a temporary prosperity akin to pouring gasoline on a fire. The central government can pay subsidies forever, while Okinawa remains on the dole.

Or, Tokyo and Okinawa can try something different.

Okinawa and the US military bases there remain central to the US-Japan security alliance and the US position in East Asia for one reason: location. Okinawa is ideal for defense of the southern Japanese islands near China’s sphere of influence, and is well sited as a jumping-off point for interventions in the Korean or Taiwanese flash points – not to mention a launch pad for peacetime disaster-response missions.

Complaints over the US bases on Okinawa center on safety, noise, crime, pollution, and even anti-militarism and historic resentments. Huge central-government payments also encourage criticism of the US from some quarters to keep the money flowing – on the basis that the more Okinawa complains about the burden, the more cash Tokyo will offer it to shoulder that burden.

The prefectural government and Tokyo haven’t produced a realistic, comprehensive plan for a diversified economy that weans Okinawa off government payments

A sound economy would alleviate some anti-base sentiment. Yet the Okinawa prefectural government and Tokyo haven’t produced a realistic, comprehensive plan for a diversified economy that weans Okinawa off government payments – a plan that would also keep young Okinawans from fleeing for opportunities elsewhere, as they’ve done for decades.

Such a plan is feasible. Okinawa has an advantage that few Pacific islands have: It is not an underpopulated, backward speck in the middle of nowhere. To take advantage of this, there are seven steps Okinawa should consider.

First, create an environment that attracts investment. The central government should allow Okinawa to create a unique regulatory and incentive structure that attracts Japanese and foreign business, as other islands do. These kinds of structure have been emplaced on islands in seas as diverse as the Caribbean and the English Channel.

In effect, Okinawa could become a test bed for making it easier and more profitable to do business in Japan. Ironically, the once-backward US South used this approach to attract prominent Japanese companies such as Nissan and Toyota.

And Okinawa’s small size is an advantage here: A few successes would go a long way.

Second, highlight Okinawa’s competitive advantages. It is near global shipping routes and is convenient for Asian markets – not to mention the 125-million-strong Japanese market. Moreover, it compares favorably to its neighbors in ways businesses value.

Unlike China and some other regional competitors, Okinawa has rule of law; a transparent and predictable business environment; political and social stability; minimal corruption; and democracy. In fact, in the 1990s, Okinawa attempted to lure Taiwanese investors. Alas, they gave up over regulatory and other challenges that hampered business. This needs to change.

Third, attract the right kind of investment. Okinawa already has many low-skill service-industry jobs. Aim for light manufacturing and high-tech, higher-end production that creates higher-wage, higher-skill jobs. Businesses looking to establish a regional hub might be attracted, as might international law and consultancy firms. Okinawa is cheaper than Hong Kong and other major Asian cities, while only a short flight away – and its air is very breathable.

Its comparatively high-cost environment could be overcome by Japanese manufacturing efficiency and productivity. Okinawa also has a relatively well-educated workforce, but needs to upgrade its education.

Fourth, recognize that while tourism is an important pillar of an economy, it shouldn’t be the only one. Tourism has increased in recent years, but it is a seasonal prosperity and creates only narrow job opportunities.

Fifth, avoid faddish “silver bullet” projects. Okinawa’s Free Trade Zone has produced little. The Okinawa Institute of Science and Technology has absorbed more than a billion dollars’ worth of central-government largesse with scant results. Casinos? A Cayman Islands–type financial center? These would mostly benefit shady accountants and yakuza.

Another common mantra is “retail” and “high-end residential,” based on a decade-old study claiming these produce many times more income than military bases. The study is routinely cited, but offers few specifics. And construction is only a one-time boost, while service jobs in shops and mansions are unlikely to keep Okinawa’s best and brightest around.

“IT” is another magic solution. The prefectural government has claimed that Okinawa’s information-technology industry employs 22,000 people. If so, it is well hidden. This sector has prospects, but more work is necessary.

Sixth, promote Okinawa’s unique human capital. Okinawans were traders and sailors throughout Asia back when those were dangerous occupations. Today, they are savvy businesspeople and are more comfortable dealing with foreigners than most other Japanese.

Seventh, accept military bases as one pillar of a diversified economy. Bases offer a steady income and decent jobs, regardless of cyclical downturns. The Tokyo area has four major US bases (and many Japan Self-Defense Forces bases), and these are part of a prosperous diversified economy.

The Nago election might suggest to Okinawa’s leaders that instead of pilgrimages to Tokyo demanding money, they should be looking two or three generations ahead. They need a clear plan for developing the economy and keeping young people on the island. Tokyo should help Okinawa  achieve all this.