the challenge for okinawa: thriving locally in a ...

OKINAWA: JAPAN’S FRONT-RUNNER IN THE AISA PACIFIC THRIVING LOCALLY IN A GLOBALIZED WORLD

"AS THE EYES OF THE WORLD FOCUS ON OKINAWA OKINAWA OFFERS ITS HEART TO THE WORLD"

Hiroshi Kakazu, Ph.D.

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CONTENTS

INTRODUCTION AND ACKNOWLEDGEMENTS

A LITTLE HISTORY OF THE RYUKYU KINGDOM AND OKINAWA

GEOGRAPHY AND CULTURE The Galapagos of the Orient Champru Culture Chinese Cultural Influences Japanese Cultural Influences American Cultural Influences Okinawa: The Real Shangri-La?

OKINAWA’S SUSTAINABLE DEVELOPMENT Main Characteristics of Island Economies Population and Employment Economic Performance and Living Standards Industrial Structure Trade Imbalance and Sources of External Finance Entrepreneurship and Human Resources development

SUSTAINABLE ISLAND TOURISM: THE CASE OF OKINAWA The Roles of Tourism for Small Island Economies State of Okinawa’s Tourism Industry Sustainable Tourism Development and Carrying Capacity A Casino Controversy

NEW FRONTIER FOR OKINAWAN AGRICULTURE The Roles of Agriculture in Small Island Economies Two Approaches for Islands’ Food Security

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State of Agriculture in Okinawa Agro-industry Health Foods as a Growing Agro-industry

ISLAND RESOURCES AND GREEN TECHNOLOGY What is Island Green Technology? The Melon Fly Eradication Technology Deep-Sea Water Technology Biomass Technology Bottles Recycling Technology Ethanol Production from Sugarcane: Solutions to Energy Issues? Underground Dam System Renewable or Green Energy Development

OKINAWA 21ST CENTURY VISION PLAN: FROM JAPAN’S PERIPHERY TO A FRONT-RUNNER Leading Industries and Strategies Information and Communication Industry (ICT) Okinawa: A Cargo Hub in Asia Okinawa International Logistics Industry Zone (ILIZ) Possible Entries into the Special Free Trade Zone (SFTZ) U.S. Base Conversion Global Human Resources Development and Development Constraints

CONCLUDING REMARKS: ENLIGHTENMENT OPTIMISM NOTES AND REFERENCES COMMENTS BY KENJI SUMIDA (Former President of the East-West Center)

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ABOUT THE AUTHOR

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INTRODUCTION AND ACKNOWLEDGEMENTS This manuscript was originally written in 2000 as a research report of the Okinawa Development Finance Corporation, when the author was Vice President of the institution, for the purpose of promoting a better understanding of Okinawa’s history, culture, economic performance, issues and prospects, at the historical occasion of the G-8 World Leaders' Summit held in Okinawa during 21-23 July 2000. The manuscript was favorably read by the summit participants. The manuscript was revised and updated several times for the Pacific Leaders Meetings (PALM) held in Okinawa with heads of fourteen independent and self-governing Pacific Island countries in 2003, 2006 and 2012. This manuscript is the latest and expanded version of the 2012 report. PALM adopted “the Okinawa Initiative on Regional Development Strategies for a More Prosperous and Safer Pacific.” This initiative emphasized the important role of Okinawa in spearheading and coordinating development and educational relationships among the Pacific islands: “Okinawa shares many common development issues with the Pacific island countries/regions including their small size, isolation, fragmentation, resource limitation and fragility, and vulnerability to natural disasters and outside economic and political impacts beyond their control. As such Okinawa’s situation and experiences can be very useful in terms of developing appropriate models for sustainable island development in this region” (Ministry of Foreign Affairs, 2003). This manuscript intends to respond to the challenges and opportunities raised in the PALM Okinawa Initiative. Okinawa is also the birthplace of Nissology (the study of islands in Greek). The first meeting of the International Small Island Studies Association (ISISA) was held in Okinawa in 1994 under this author’s chairmanship. Nissology has now become a new field of scientific investigation on a global scale. Following the establishment of ISISA, the Japan Society of Island Studies (JSIS) was created in 1988. There are more than fifty active research and network institutions on Nissology, including Institute of Island Studies (Canada), Islands and Small States Institute (Malta), Small Island Cultures Research Initiative (Australia), International Scientific Council for Island Development (France), Global Islands Network (Germany), Center for Pacific Island Studies (Hawaii), Japan Institute for Pacific Studies, Center for Asia-Pacific Island Studies (Okinawa), Island Institute (U.S.A.), Dicuil Insttitute of Island Studies (Scotland), Society for Indian Ocean Studies (India), Institute for Islands Development (Estonia), Island Resources Foundation (Virgin Islands) and others.

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Why have small islands attracted so many researchers in recent years? One explanation may be that researchers who have been marginalized in mainstream international academic forums for many years began to assert their identity as islanders. Another explanation may stem from the uniqueness and elusiveness of the islands as an object of scientific investigation. Their characteristics are vastly different from island to island. For instance, the Japanese islands named Takara Jima (Treasure Island) and Akuseki To (Evil Stone Island) are located side by side. Their names demonstrate the commonly-held, but contradictory images of islands as both paradise and hell or closure (prison) and openness (utopia). Because of the elusiveness of islands, including their definition and characteristics, mainstream, disciplined scientists have excluded “islandness as a minor factor from their investigation. It is also true that an approach to island studies requires what Gunner Myrdal called a “multi- or trans-disciplinary approach” which is more complex than the conventional approach of scientific discovery. A comparative study between islands may deepen our understanding of the uniqueness and similarities of the island societies. This manuscript is based on the author’s research, teaching and networking activities on the Pacific islands, focusing the islands of Ryukyu or Okinawa. The author would like to thank Dr. Charles Morrison, President of the East-West Center and his staff for their comments and editorial services on the first draft. The author also deeply indebted to Professors Hiroshi Yamauchi, Teo Fairbairn, Grant McCall, Godfrey Baldacchino, Huei-Min Tsai, Kenneth Kanesiro, Gay Satsuma, Lonny Carlile, Kazuhiko Taira, Hideki Uehara and John Purves, Mressrs. Kenji Sumida and Masato Kodama, Ms. Emma Tome and others for their reviews and invaluable suggestions on the earlier drafts, and providing fascinating photos. Thanks are also extended to the staff of the Research and Planning Department of the Okinawa Development Finance Corporation (ODFC), particularly Mr. Masaharu Ono and Ms. Miyako Maekawa for assisting in data collections and compilation. Needless to say, none of them are responsible for any shortcomings in this work.

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A LITTLE HISTORY OF THE RYUKYU KINGDOM AND OKINAWA The name “Ryukyu” first appeared in the Chinese history book of Sui in 607 (Kerr, 1958). The Ryukyu islands extend from the Amami islands to Okinawa’s Yaeyama islands with 174 islands, of which about 50 islands are inhabited. The origin of “Okinawa” is not clear. It literally means “the rope in the open sea.” The Amami island group, which was ruled under the Ryukyuan Kingdom during 1429-1894, is now under the domain of Kagoshima Prefecture. Islanders of both Amami and Okinawa call each other “brother islands” because they share more or less common historical and cultural legacies. The precise origin of Ryukyuan people is unknown. But historians and archaeologists believe that they migrated from China, Japan, Southeast Asia and Micronesia. The earliest human bones discovered on the Island of Okinawa indicated there were human life about 32,000 years ago. There are many evidences to indicate that the earliest inhabitants of these islands crossed a prehistoric land bridge from modern-day China (Takamiya, 2005). The first official history book of Okinawa was compiled by Sho Shoken also known as Haneji Choshu in 1617. The book describes that the first king of the Okinawa Island was a son of a Japanese samurai, Minamoto no Tametomo (1139–1170) who was an uncle to Minamoto no Yoshimoto, the first shogun of the Kamakura shogunate (1185-1333). According to the history book, Tametomo was exiled to Izu Oshima and then fled to Okinawa after the aftermath of the Hogen Rebellion in 1156. Tametomo is the subject of a number of myths and legends. Most historians today regard this story as a pure fiction, and fabricated in order to justify Japanese rule over the Ryukyu Kingdom (Takara, 1998). During the Kamakura period, Ryukyu Islands were ruled by three independent kingdoms with their own “Gusukus” or castles. These Gusukus and related cultural remains in the Ryukyu Islands were listed by UNESCO as World Heritage Sites in 2000. During this Gusku period, the islanders engaged in the growing international trade with China and other Asian regions. Early Chinese visitors to Ryukyu appreciated the hospitality of the islanders as well as discovering the huge economic gap among the people. In 1492, Sho Hashi or Shang Bazhi in Chinese, a son of king Chuzan, unified the three contested kingdoms on the Okinawa Island, and he was recognized as the first Ryukuan king by the Emperor of the Ming dynasty. Since then, the Ryukyuan kingdom lasted for about 450 years until it was formally unified with Japan in 1879. It should be noted that it is only 136 years since Okinawa became an integral part of Japan.

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Nearly two centuries after the reign of Sho Hashi, particularly during the Sho Shin Kingdom (1465–1526), Ryukyu enjoyed great peace and prosperity through trade with Japan, China and other Asian regions. An inscription on a bell cast in 1458 for Shuri castle, which was the royal court and administrative center of the Ryukyuan kings, tells the following story:

The Kingdom of Ryukyu is a place of beauty in the Southern Ocean. Gathered here are treasures of the three countries, Korea, the Great Ming, and Japan. It is a treasure island which emerged from the sea Between China and Japan. Its ships ply between ten thousand countries. And it is filled with wondrous things which are to be seen everywhere.

(Shuri Castle was reconstructed and opened to the public in 1992. The Castle was used by the Ryukyu kings for administrative and ceremonial purposes. It is now a symbol of Okinawa’s rich historical and cultural heritage.)

Ryukyuan merchants bought Chinese products such as medicinal herbs, minted coins, ceramics in Japan to exchange with Japanese made silver products, swords, fans, lacquerware, holding screens. Tributary trade between the Ming and Ryukyu was particularly lucrative and important for the Ryukyu Kingdom. In various Ancient states, including Persian, Roman and Byzantine Empires, tribute or contribution took place from the ruled to the ruler as a sign of allegiance or submission in exchange for protection of the people. In case of the Ming dynasty, however, the tributary system,

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which is also known as Shinko, Sakuhou and Choukou in Japan, provided exclusive trading privileges to several tribute states such as Ryukyu, Japan, Korea Vietnam Cambodia and Indonesia in return for their recognition of the Ming dynastic as their suzerain. This tributary trade continued to produce surpluses for Okinawa until Satsuma invaded the islands and took over the lucrative trade with China. Although commercial trade with various parts of Southeast Asia such as Siam, Palelmbang, Java, Malacca, Sumatra, Annam and Patani had ceased by the end of the 16th century, the tributary trade with China continued until the mid-19th century. Historians refer to the period of the 15th and 16th centuries as Okinawa's "trade-induced golden age" (Takara, 1998). This glorious period is still very much alive for many contemporary Okinawans. Whenever the future role of Okinawa is discussed, people nostalgically recall this self-generated, self-owned golden era. The tributary system with China not only brought prosperity to Ryukyu, but it also brought many Chinese families to Ryukyu to serve the government or engage in business during this period. The Ming dynasty even sent professional managers, traders, teachers and technocrats at the request of the Ryukyuan kings. Many Ryukyuan officials were descended from these Chinese immigrants, being born in China or having Chinese grandfathers. Naturally, as we discuss later, Ryukyu inherited numerous Chinese cultures, including language, ceremonies, festivals, architecture, arts, music, dance and others. Chinese migrants to Ryukyu mostly resided in a sort of “China town” called the Kume village of the present day Naha. It is puzzling why this China town disappeared despite the fact that China towns flourished in many places in the world, including mainland Japan up to now. The Ryukyuan Kingdom also sent Ryukyuan students to Ming to learn their advanced systems and agricultural technologies. The most significant ones were introduction of sweet potato and sugarcane. Noguni Soukan brought seedlings of the sweet potato to Ryukyu in 1605 and his lord Gima Shinjo (1557–1644) successfully spread it. The sweet potato fitted into Ryukyus’ poor soil and harsh typhoon climate. The crop became Ryukyus’ staple food for many years, saving occasional famines. The sweet potato later planted in Satsuma where it became known nationally as "the Satsuma potato." Another important crop brought from China was sugarcane along with its processing methods in 1623. Sugar became the most important Ryukyuan cash crop up to now. In 1609, the Shimazu clan of Satsuma Domain, present Kagoshima Prefecture, invaded the Ryukyuan Kingdom under the approval of the Tokugawa shogunate (1603-1867). As a result of Satsuma’s one-sided victory over the kingdom, the Amami Islands were ceded to Satsuma and Ryukyu became a vassal of Satsuma even it recognized the Ryukyu’s independence. The Tokugawa

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shogunate requested the Ryukyuan Kingdom various types of aid or services through Satsuma, but the kingdom did not meet all Tokugawa’s requests. Satsuma’s invasion of the kingdom was conducted as a punitive action for not meeting Tokugawa’s demand. The tributary system between Ryukyu and China lasted long after Satsuma’s control over Ryukyu. Because China would not make a formal trade agreement unless a country was a tributary state, the Ryukyu kingdom was a convenient loophole for Japanese trade with China. When Japan officially closed off trade with European nations except the Dutch in Nagasaki, Naha became the only trading ports offering connections between the outside world and Japan. Satsuma’s controlled Ryukyu indirectly in order to reap benefits from the trade with China. Since Japan had no formal diplomatic relations with China, it was essential that the Tokugawa shogunate and Satsuma to adopt “hands-off policy” over Ryukyu in order to disguise their control over the Ryukyu Kingdom. Satsuma restricted travel between Ryukyu and Japan and forbade to adopt Japanese names and custom. Satsuma also banned sword ownership in Ryukyu, which led to the development of the indigenous martial art, karate. In 1867, Satsuma played an important role to overthrow the Tokugawa Shogunate, and establishing the Meiji Government next year. This revolutionary change in the Japanese government system is called the “Meiji Restoration” because it restored the political system under the Emperor who used to rule Japan. The new government abolished Tokugawa’s feudal domain system, and established prefectures in 1871. It was not until 1879 when the Meiji Government formally annexed the Ryukyu Kingdom as the Okinawa Prefecture. This unilateral act was euphemistically called the first “Ryukyu Disposition.” China protested against the act, and asked former U.S. President Ulysses Grant to intercede. When the negotiation eventually failed, Japan annexed the entire Ryukyu archipelago. The last king of the Ryukyu was forced to relocate to Tokyo. Long before Ryukyu’s unification with Japan, the Meiji Government adopted an assimilation policy of Ryukyu to the Japanese system. The Meiji Government overhauled the old governing systems of the kingdom. The government feared that the location of the kingdom could pose serious security problems of the new government because the islands could be used as a stopover point of the outside big powers. Actually, Commodore Perry’s fleet of "black ships," official envoys from the United States made an uninvited call at Okinawa’s Naha port in 1853 on their way to Edo (Tokyo). The Ryukyuan peoples and the Chinese Ch'ing government strongly protested against the Japanese Government’s assimilation policy over Ryukyu. The Meiji government demonstrated Ryukyuan as its subjects of Japan by sending military forces when a massacre of Ryukyuan sailors by Taiwanese aborigines took place in 1871. This “Mudan Incident” influenced a mindset of the Ryukyuan that the

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Japanese government acted as their genuine protector. Ryukyu’s pro-Japanese sentiment was further intensified by Japan’s victory in the Sino-Japanese War in 1895. Many Ryukyuan saw Japan’s rising power and the best hope in the future. Journalism and intellectuals at that time advocated full social assimilation with Japan. Iha Fuyu, who is regarded as the “Father of Studies of Okinawa, “ wrote “We must even sneeze as the Japanese do” (Iha, 1942). Education, particularly language was the most vigorously promoted realm of Japanese assimilation policy. The Meiji Government introduced “imperialization policy of education” into Okinawa’s school system earlier than other mainland prefectures because the government considered education is the most effective tool for successful assimilation process as well as to eliminate pro-Chinese elements. Despite some resistance and complaints about learning and indoctrination as “imperial subjects,” the process was a great success being supported by the bottom-up enthusiasm of local school teachers. In contrast to Taiwan, where the Japanese government spent a huge amount of public investment in the areas of infrastructure, buildings, agriculture and higher education, Okinawa was neglected except promoting its sugar industry. The Okinawan economy predominantly based on subsistence agriculture and fisheries. Even the economic boom during the First World War did not bring fortune to the Okinawan peoples. Instead, the great depression of the 1920s in Japan affected the lives of Okinawa seriously. This severe economic depression is still remembered as “Sotetsu Jigoku (Cycal Hell)” among elder peoples. Starvation among rural and island areas persisted, and they had to east sotetsu which contains the poisonous ingredient. Many Okinawans were forced to sell their relatives and migrated to mainland Japan and overseas to escape from the living hell. In 1899, the first overseas out-migration, except Japan, began to Hawaii with 27 peoples (FIG. 1). The number of migrants reached more than 70,000 in 1938 with South America (71%), Hawaii (18%), North America (8%), Southeast Asia (2%) and others. The Okinawa Prefecture recorded the highest out-migration ratio per total population among Japan’s prefectures. As we discuss later, those migrated Okinawans (Uchinanchu) were prosperous in their settled lands. They continued to remit money to their motherland until just after World War II. At one point, these remittances covered Okinawa’s trade deficits entirely.

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FIG. 1. WORLD UCHINANCHU NETWORK & WORLD UCHINANCHU BUSINESS ASSOCIATION (WUB), 2011

Note: () figures are number of organizations. Source: Constructed from the data of Okinawa Prectural Government In the years leading up to World War II, the Japanese government sought to build its frontline war bases in Okinawa to prepare for the Pacific war. The government reinforced mobilization for war efforts and nationalistic propaganda. In order to expel persistent prejudice and discrimination by mainland Japanese people, Okinawans wished to prove their value to the nation through contributing the war efforts. Ironically, these war efforts brought huge historical negative consequences through “the Battle of Okinawa” in 1945 (Ota, 1984). The 110,000 Japanese troops with poor weapons had to fight with the U.S. force of 540,000 with overwhelming superiority. Okinawa became one of the bloodiest battlegrounds in World War II as the U.S. Troop described the battle as “the hell of hells.” Over 94,000 Japanese and 12,000 American soldiers were killed. About 125,000 Okinawan civilians

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were also killed. The Okinawans lost in the battle accounted for more than one-third of the total Okinawan population at that time. Almost all trees, unrecoverable cultural assets and properties on the Island of Okinawa were destroyed. Okinawa virtually had to start from the war-devastated ashes. In 1952, the San Francisco Peace Treaty and the Japan-U. S. Security Treaty were concluded which largely determined Okinawa’s postwar history up to the present day. Based on these pacts, the Ruyukyu Islands, including Amami Islands, were placed under the U.S. military rule. The people strongly protested this agreement as the second “Ryukyu Disposition” after Okinawa’s annexation to Japan in 1879. The Amami Islands were returned to Japan in 1953 since the U.S. did not find any strategic military value there. Since then the life of Okinawa has revolved with the U.S. bases up to now. The outbreak of the Korean War in 1950 and the ensuing Cold War made Okinawan location more important than before as the “Keystone of the Pacific” for the U.S. military presence, and the massive buildup of the U.S. bases began on the civilian lands which quite often confiscated by "bayonets and bulldozers." The expansion of U.S. bases continued until 1963 with the total base area about 352 ㎢, or about 20% of Okinawa Island’s total land area. In 1972, when Okinawa was returned to Japan, the U.S. base area reduced to 289 ㎢. It is still the case that about 74% of all U.S. military base facilities for the exclusive use of U.S. forces in Japan are located in Okinawa Prefecture, which is only 0.6% of Japan’s total land area (FIG. 2). FIG. 2. U.S. MILITARY BASES IN OKINAWA, 2015

Source: Okinawa Prefectural Government

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Among 32 U.S. military facilities, the Kadena Air Base is the hub of airpower in the Asia Pacific, and home to the Air Force’s largest and world-class combat operations with about 18,000 Americans and 4,000 Japanese employees. The relocation of the Marine Corps Futema Air Station to Camp Schwab has been the most controversial issue between the Okinawa Prefectural Government and the Japanese Government in recent years. Although the U.S. military rule and base presence caused various political and social problems, Okinawa experienced unprecedented economic growth being supported by the military expenditure and related development policies. The military expenditure accounted for about 40% of Okinawa’s national income in the 1950s through the late 1960s. The dollar income generated from the U.S. bases compensated all trade deficits of Okinawa. Direct U.S. base employment accounted for about 14 % of Okinawa’s labor force in the 1960s. Per capita income, a rough indicator of the living standards, increased more than 6 times, from mere $149 in 1955 to $951 in 1971, the year before Okinawan reversion to Japan. In 1958, the military government introduced the U.S. dollar as Okinawa’s legal currency in order to integrate the Okinawan economy into the U.S. economy, while promoting international trade. Following the introduction of the U.S. dollar, the first free trade zone (FTZ) was established in 1959. Many imports-substituting industries such as beer brewing, cement, plywood, steel, processed foods and others were also established under the tariff protection and subsidy in the late 1950s. The U.S. presence on Okinawa (1945-1972) also influenced on Okinawan culture. Rock music, food habits, “Amerasian” (children fathered by U.S. servicemen) and “anti-war culture” are particularly noted. The first fast food introduced in Okinawa was “Papa Burger” with root beer, a product of A&W, long before McDonalds became popular in Japan. Okinawa is still the only place in Japan which houses A&W fast food restaurants. American food culture definitely adversely affected Okinawa’s proud history of world-renown longevity. It is interesting to note, however, that Okinawa never picked up the custom of tipping as other American and British ruled regions. Also Okinawa’s overall English proficiency is much lower than Japan proper which is one of the lowest English proficiency in the Asia-Pacific. Hamamoto, a Hawaii born UC Davis professor, describes the U.S. military rule

on

Okinawa

as

“soft

colonialism”

which,

unlike

“neo-colonialism”

or

“postcolonialism,” functions culturally and physiologically to maintain unequal, exploitative political relationship (Hamamoto, 2006). On May 1972, based on the Okinawa Reversion Agreement concluded in 1971, the administrative control of the Okinawa islands returned to Japan. Once again Okinawa became one of Japanese

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prefectures. Despite the reversion was “earnest wish” of the majority of Okinawans, the reversion agreement sparked controversy in Okinawa because it clearly stated the status quo of the presence of the U.S. military bases as a deterrent against the increasing muscles of China and North Korea. Okinawa wished to return to the Japanese democratic and peace constitution. For Japan and the U.S., however, the reversion was to keep freehand and stable operations of the U.S. military bases. The “Koza riot,” which occurred in Okinawa’s second largest city located nearby the U.S. Kadena Air Base on December 20, 1970, symbolized the anger of Okinawans against 25 years of military occupation. About 5,000 protesters clashed with American military police. Even after the reversion, the issues related to U.S. bases remained unchanged. In 1995, Marine servicemen kidnapped and raped a 12-year-old girl. A huge island-wide public outrage erupted on not only the incident, but also on U. S.-Japan Status of Forces Agreement (SOFA) which gives the U.S. service members a certain measure of exemption from the jurisdiction of local law called “extraterritoriality.” Immediately after the incident, the U.S. and Japan drafted the base alignment plan, including the relocation of the Marine Corps Air Station Futema, which is located in the densely populated area, to Nago’s Henoko Bay. Despite strong “all Okinawan protest,” the new base construction started in 2015. Takeshi Onaga, the Governor of Okinawa Prefecture has determined to stop the base construction within Okinawa by all means. The following sections will focus on Okinawa’s geography, culture and economic development after the reversion.

GEOGRAPHY AND CHMPURU CULTURE 1. Geography The Ryukyu Islands known in Japanese as the Nansei Islands (‘Southwest Islands’) and also known as the Ryukyu Arc (‘Liukiu Bogen’) are a chain of Japanese islands that stretch southwest from Kyushu to Taiwan (FIG. 3). The Ryukyu Arc is a reminder of a continental land bridge during glacial periods which spanned from 2.6 million to 11,700 years ago (Koide, 2007).

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FIG. 3. A CONCEPT OF THE LIUKIU BOGEN

Penghu Is.

Source: WIKIPEDIA, modified by Kakazu (2015).

The island groups of Amami, Okinawa, Miyako and Yaeyama were subjected to the Ryukyuan Kingdom (1429-1879). The larger are mostly volcanic islands and the smaller ones are mostly coral islands. The largest of the islands is Okinawa. The climate of the islands ranges from humid subtropical climate in the north to tropical rainforest climate in the south. Precipitation is very high, and is affected by the rainy season and typhoons. Except the outlying Daitō Islands, the island chain has two major geologic boundaries, the Tokara Strait between the Tokara and Amami Islands, and the Kerama Gap between the Okinawa and Miyako Islands. The northernmost of the islands, Osumi, and Tokara Islands, fall under the cultural sphere of the Kyushu region of Japan; the people are ethnically Japanese and speak a variation of the Kagoshima dialect. The Amami, Okinawa, Miyako, and Yaeyama Islands have a native population collectively called the Ryukyuans although they cannot communicate easily with their own dialects. Administratively, the Amami island group belongs to Kagoshima Prefecture, while the southern part of the island chain belongs to Okinawa Prefecture. Okinawa is the only Japanese prefecture to lie wholly in the subtropical ocean climatic zone. It is located on the northwestern edge of the Pacific Ocean, just east of the Asian continent, and the southwestern tip of Japan with a total land area of 2,265 square km (874 sq. miles) . It spans a

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distance of 1,000 kilometers (622 miles) from east to west and 400 kilometers (248 miles) from north to south with 160 islands, of which 39 are inhabited (FIG. 4).

FIG. 4. OKINAWA: JAPAN'S ISLANDS PREFECTURE

MAINLAND JAPAN

Land area: 2,277 ㎢ (0.6% of Japan) Population: 1.4 million 2015) Okinawa Island Group: 1.3 million Miyako Isalnd Group: 0.5 million Yaeyma island Group: 0.5 million Population density: 619/sq.m

DISTANCE (KM)

AMAMI ISLANDS TOKYO

NORTHERN ISLANDS

OKINAWA ISLAND

IHEYA IZENA

1600

IEJIMA AGUNI

*

KUME-JIMA

***

EASTERN ISLANDS OKINAWA

ZAMAMI ** TONAKI **

CHINA

KUDAKA DAITO-JIMA

YAEYAMA

*

Senkaku/Diaoyu Islands **

***

MIYAKO

N

*** ***

290

MIYAKO

IRABU

120

ISHIGAKI

IRIOMOTE

ISHIGAGI

TAIWAN

TAKETOMI YONAGUNI

106

KUROSHIMA **

YONAGUNI

HATERUMA **

Source: Constructed by Hiroshi Kakazu (2015)

111 TAIWAN

The average annual temperature is 22.4 degrees Celsius, and average annual precipitation is 2,037 millimeters. Except for occasional typhoons during the summer, no natural disasters have been reported in recent years. Okinawa, with its abundant flora and fauna, including unique indigenous species such as the Iriomote wildcat, Pryor’s woodpecker and Okinawa rail, has sometimes been called the “Galapagos of the Orient.” There are few economically significant natural resources to be exploited. Currently, the most important natural resources are coral reefs and beaches which attract millions of tourists every year. There are 350 varieties of coral in Okinawa alone accounting for nearly half of the world’s varieties. 2. Okinawa’s Champuru Culture

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Culture, which has its root meaning “to cultivate,” can be commonly defined as “the set of distinctive spiritual, material, intellectual and emotional features of society or a social group, and that it encompasses, in addition to art and literature, lifestyles, ways of living together, value systems, traditions and beliefs “ (UNECSO, 2002). Culture is a way of living that is closely attached to a given land or society, whereas civilization could be considered the institutions and functional apparatus of living that can be utilized universally beyond land and society (Masuda, 1992). These cultural traits are transmitted from generation to generation through thesocioeconomic impacts of endogenous as well as exogenous forces, and they change over time. As we have discussed, Okinawa or Ryukyu has undergone three major cultural transformations. The first was from 14th to 19th century when the Ryukyu Kingdom was a tributary state of China. The second transformation took place after the Japanese government forcefully dismantled the Ryukyu Kingdom and created Okinawa Prefecture in 1879. Japanese cultural influences actually began much earlier when the Lord of Satsuma invaded the Ryukyu Kingdom in 1609. The third transformation of Okinawa took place after the Battle of Okinawa in 1945. Okinawa fell under direct U.S. military occupation for 27 years, during which it was subject to different institutional systems from that of Japan proper. Additionally, the American way of life penetrated deeply into the island lifestyle. Each external influence served to shape Okinawa’s cultural heritage into a champuru culture, or mixed culture as is schematically depicted in FIG. 5.

FIG. 5. A Concept of Okinawa’s Champuru Culture

Japanese Culture

American Culture

Okinawa’s Champuru Culture

Source: Kakazu (1912)

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Chinese Culture

Wakashu Odori or Boys' Dances which are performed by boys prior to the coming-of-age ceremony

(1) Chinese Cultural Influences China played a dominant role in shaping Okinawa’s culture during the period not only in materialistic dimensions such as the introduction of sugarcane and sweet potato cultivations, handicraft and traditional dances which became major assets of Okinawa, but also in the practices of education and spiritual belief systems. Although the Chinese system of education was totally displaced by the Japanese system, particularly after the annexation of Okinawa by mainland Japan in 1879, “ancestor worship” and related rituals are still firmly rooted in Okinawa’s spiritual life. Family altars, tombs, obon, and eisa are all related to ancestor worship which combined with Okinawa’s ancient belief of animism, Buddhism and Taoism. The Chinese zodiac and the lunar calendar system still play important roles in Okinawa’s major rituals and festivals. Several important Chinese cultural legacies are highlighted.

Ancestor Worship: Okinawan Religion? “Okinawan religious beliefs may be characterized as animistic, for all things, animate and inanimate, are conceived as possessed of indwelling spirits” (Lebra, 1966). Animism was formally transformed into ancestor worship in Okinawa through the influence of Chinese Buddhism. Ancestor worship is a strong tradition close to the status of religion. For in sharing their happiness

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and healing their despair with their ancestors, they expect the cenotaph tablets of their forefathers to protect them (Lebra, Ibid.). Ceremonies and styles of ancestor worship are observed in Okinawa’s daily life and typically on the occasion of special festivals. One symbol is the family altar, called Totome, small wooden plaques located on step-like shelves in the central room of the house, which is inscribed with the names of family ancestors.

(Totome =Alter)

(Prayers before Totome)

Another good example of Chinese influence is found in the style of Okinawan tombs. Visitors from mainland Japan are surprised to see such large tombs located near residential areas. The shape of these tombs symbolizes the woman’s womb from which babies are born and to which the dead should return. These tombs, which were initially introduced by a Chinese Fujian Buddhist priest, are a good symbol of the ancestor worship of Okinawa which was inherited from China many generations ago. In the early period of Ryukyuan history, the deceased were buried in caves on hillsides and along the seashore. These “turtle-back” style Chinese tombs were used as hiding places or shelters during the Battle of Okinawa.

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(Old OkinawanTomb)

(Chinese Turtle-back style Tomb)

Obon (Bon), the most important yearly religious ritual and festival to honor the dead, is held in August according to the Chinese lunar calendar in Okinawa. The festival is celebrated to welcome the spirits of ancestors to the family altar. Relatives offer food and gifts, and they pray and talk with their ancestors. During the Obon season, people enjoy listening to the sounds of eisa drums and folk songs, and they also feast their eyes on eisa or bon dances performed in the streets and various open fields by the youth. The traditional, colorful costumes of dancers are worn under the full moon. Eisa dances are unique to Okinawa. Passed on from generation to generation in a manner of cultural innovation and creativity, the dances have changed, in part, due to outside influences such as entertaining tourists. The very nature of eisa dance is an ethnic phenomenon or a diasporic performing art which is deeply rooted in Okinawan cultural heritage (Yamamoto, 2002).

(Eisa dance)

(Sanshin lesson for tourists)

Dragon Boat Race (Harii or Hare)

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Harii or hare (in Itoman), which was introduced from China, was traditionally linked to the Kaijin-sai (Unjami) or fisherman’s festival to give thanks to the sea god and pray for the safety of fishermen and good catches. Nowadays, harii is one of the most popular, lively festivals in Okinawa during the late spring and summer period. Among many harii in Okinawa, the most popular ones are the Naha harii and Itoman hare. Itoman is a southern community village with a long history of fishing for its livelihood. The Itoman hare, which is held on the fourth day of the fifth month in the Chinese lunar calendar, symbolizes the end of the rainy season and the beginning of summer in Okinawa.

(Naha Harii)

Architecture: Shuri Castle Shuri Castle, the home of twenty five Ryukyu kings from King Sho Hashi (1407-1469) to King Sho Tai (1866-1879), is a living symbol of the prosperous Ryukyuan Kingdom as well as a symbol of the architectural mix of Chinese, Japanese and Korean styles. Shuri Castle was said to have been patterned on the Palace Museum in Beijing and Japanese Buddhist temple. Shuri Castle was bombed during the Battle of Okinawa and the wooden structure burned to the ground. Part of the castle was reconstructed and opened as Shuri Castle Park in 1992. It has been designated a UNESCO-protected World Heritage site.

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(Palace Museum in Beijing)

(Todaiji Temple in Nara)

(Shuri Castle in 1935)

The Shuri Castle Park has been the single most attractive tourist site in Okinawa since it was created. It attracted more than three million tourists in recent years. The castle is not only the reminder of Okinawa’s golden era as an independent, prosperous kingdom, but also it symbolizes Okinawa’s rich cultural heritages including architecture, crafts and performing arts.

Ishiganto and Shisa Almost every busy street corner in Okinawa, you may come across a stone marker with the Chinese characters as follows:

(Okinawa’s 石敢當)

(Penghu’s 石敢當)

(Okinawa’s Shisa)

(Kinmen’s 風獅爺)

Street

According to Masato Kodama (1999), the ishiganto (石敢當), a symbol of old Chinese beliefs, was introduced to Okinawa from China around the early 18th century to ward off evil spirits from entering into the house. The ishiganto is erected at an intersection or a dead end street because of the belief that evil cannot turn at corners. Like Ryukyu, ancient Penghu islanders erected guardian stones (石敢當) around the houses (Kakazu, 2015b).

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The most popular symbol of Okinawa is a lion-dog statue called a shisa (風獅爺 in Kinmen) which was introduced from China around the 14th or 15th century to ward off or deflect bad spirits. Shisa can typically be found at the entrance to main streets, buildings and the roofs of houses. It is unlikely that you can walk along the Okinawan streets without encountering strange looking, ferocious, yet various shaped humorous shisa figures. Similar shisa statues can be seen in Asia and mainland Japan, but the statue fits more comfortably in Okinawa than in any other country in the world because it is an essential part of Okinawa’s spiritual life. The shisa is the best-selling souvenir for tourists. This is a good example that Okinawa’s cultural assets can be commercialized.

Language After the unification of the Okinawa Island by the Chuzan Kingdom based at Shuri in the 15 th century, the “Shuri dialect” became the standard language of Okinawa. According to Fuyu Iha (2000), the father of Okinawa gaku” (Okinawaology), and Shuzen Hokama (1971), the best-known living linguist on Okinawa , the Shuri dialect is a sister language of old Japanese. The Shuri dialect, however, evolved into a unique and an independent language system influenced by the interactions with China and Southeast Asia. We can still trace a lot of Chinese words currently used in Okinawa such as unche (雲菜), sanpin（香片）, sunshi（筍子）, tauchi(闘鶏), tari(大人), chinsuko(金楚糕), popo(餑餑) (see more details in Higa, 1983). Chinsuko is Okinawa’s top-selling cookie.

Why is there no Chinatown? Despite a long, pervasive history of Okinawa’s interactions with China, Okinawa does not have its own Chinatown. Contemporary History books tell us about “thirty-six Chinese families” (a term which means “many”) settling in Kume Village, present-day Naha City in the late 14th century (Kerr, 2000). They were mostly specialists in arts, crafts, administration and agriculture. “Of the Chinese customs introduced at this time and taken over into Okinawan life many became so well assimilated to local tradition and custom as to be indistinguishable today, but the origins of others remain traditionally identified with the founding of the village” (Kerr, ibid.). If we think of flourishing Chinatowns in mainland Japan and Southeast Asia, it is a great mystery why there are no remnants of a defined Chinatown. One explanation is Okinawa’s champuru culture totally absorbed Chinese culture. (2) Japanese Cultural Influence

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There is much evidence that Okinawa had socio-cultural, economic exchanges with Japan long before Satsuma’s troops invaded Okinawa in 1609. The Okinawan dialect, for example, is considered to be a part of the Japanese language system (Iha, 2000). The Okinawan dialect contains numerous expressions of old-style Japanese. There are also a lot of common cultural heritages between Okinawa and mainland Japan, including animism and ancestor worship. Okinawans, however, are often distinguished from the mainland Japanese by their physical traits of “hairy, dark, big eyes and friendly smile.” The Japanese influence on Okinawan culture, however, has become apparent, particularly in the areas of education andsocioeconomic systems since the annexation of Okinawa in 1879. After several decades of a “hands off” policy towards new Okinawa prefecture, the Meiji government implemented various unification policies before the annexation. In the name of “modernization” and creating good “imperial subjects,” the old communal practices were abolished, and the Japanese school system was introduced. Introduction of nationwide compulsory education was probably the most important tool to assimilate Okinawa into the Japanese system. The Japanization of Okinawa reached the peak of its intensity in the 1930s under the rising influence of Japan’s military power. The Standard Japanese Enforcement Movement was instituted in 1939 as a part of the national spiritual mobilization campaign. All school children were expected to speak fluent Japanese from the primary school level. In order to achieve this objective, a pupil who spoke Okinawan dialect or hogen on school premises was punished by means of hogen bura (方言 札) or a dialect tag teachers hung on the necks of offending students, which could only be gotten rid of by passing it on to other students slipping into the tabooed language. “The hapless student who was still tagged at the end of the day had to go home earning the badge of humiliation. Sometimes, in desperation, an offender would hit unsuspecting classmates in the hope of eliciting an exclamation, which, naturally would come in dialect rather than in standard Japanese” (Field, 1991). I vividly remember that the hogen bura was practiced long after my childhood in the postwar period. It is rather ironic that the Okinawa hogen is becoming popular among young tourists from mainland Japan as well as foreign visitors. There are several classes that teach hogen to visitors. Most of the Okinawan elite supported the forced assimilation policy, believing that Okinawans were discriminated against by mainlanders because they could not speak proper Japanese. If Okinwans spoke standard Japanese, then they would not suffer discrimination. “Okinawan elites employed to minimize fundamental cultural differences with the mainland” (Smits, 1999). According to Masao Higa (2003), the practice instilled in the mind of the younger generation a sense of cultural

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inferiority. The Late governor of Okinawa Prefecture, Junji Nishime used to say that Okinawans wished to be good Japanese since the late nineteenth century onward, but we could not make it. “There is still a pervasive anxiety about speaking ‘correct’ Japanese. Language is the most elusive, because subtle, traitor. If all visible difference between peoples could be effaced, speech would still threaten to betray cultural difference, to be easily thought to have a genetic, and therefore racial, origin. The waves of programs to eradicate this difference Okinawan prewar continued into the postwar (Field, op. cit.).

(hoanden in the 1930s) Prior to Okinawa’s annexation in 1873, the Japanese Ministry of Education declared that national Okinawans as new “imperial subjects” must follow the national educational policy. The essence of the policy called kokutai (literally nationality) was to install absolute loyalty to the emperor who was a “living god” in all subjects. Okinawa’s schools established the hoanden (photo above) in particular, which housed the emperor’s photograph and “The Imperial Message on Education.” The Message starts with “Our Imperial Ancestors have founded Our Empire on a basis broad and everlasting and have deeply and firmly implanted virtue. Our subjects ever united in loyalty and filial piety have from generation to generation illustrated the beauty thereof. This is the glory of the fundamental character of Our Empire, and herein also lies the source of Our education…” The hoanden, together with the Rising Sun flag was intended to unite “children and their teachers throughout Japan in a common discipline and served to instill belief in the sacred being of the emperor and to promote the instinct for obedience to his wishes (Field, op. cit.).

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(3) American Cultural Influence America, or more precisely, the United States Department of Defense at the Pentagon ruled Okinawa for twenty seven years from 1945-1972. Huge U.S. bases remain, including Kadena Air Base, the largest airbase in the Far East. The American influence on Okinawan culture came mainly through military base activities. American bases gave birth to “Okinawa rock music” which became a brand name of Koza (current Okinawa) city located near Kadena Air Base. The rock music, combined with traditional Ryukyuan music and shimauta (island songs), produced a unique music culture in the postwar period. Okinawan popular singers such as Namie Amuro, Kiroro, Da Pump, Speed, Max, Shokichi Kina, Orange Renge to name a few, gained enormous popularity in Japan and Asia. Particularly Namie Amuro, who, dominated Japan’s R&B and pop music and culture in the late 1990s and early 2000s, was a product of U.S. bases in Okinawa because her grandfather was a U.S servicemen stationed on the island of Okinawa. Amuro quickly became a commercial success, producing several million-selling records and starting several fashion trends. Her single "Can You Celebrate?" (1997) became Japan's best- selling single by a solo female artist. Okinawans also picked up American food habits. The first fast food introduced in Okinawa and Japan was “Papa Burger” with root beer, a product of A&W, long before McDonalds became popular in Japan. Okinawa is still the only place in Japan which houses A&W fast food restaurants. American food culture definitely adversely affected Okinawa’s proud history of world-renown longevity as will be discussed later in this paper. One of the most important cultural legacies of American occupation of Okinawa may be “anti-war culture.” Since the end of WWⅡ, Okinawa has been the “Keystone of the Pacific” for the defense of the U.S. and Japan. The San Francisco Peace Treaty, concluded between the United States and Japan in 1951, mandated huge military bases on Okinawa. It is still the case that 74% of all military base facilities for the exclusive use of U.S. forces in Japan are located in Okinawa, which is only 0.6% of Japan’s total land area.

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(The Cornerstone of Peace) If we regard “symbols and meanings” as cultural elements, then we have to list the Peace Memorial Park and Museum, which may also be considered as a legacy of the U.S. involved Pacific War. The most visible symbol of the park is the Cornerstone of Peace which was unveiled in June 1995 in memory of the fiftieth anniversary of the Battle of Okinawa and the end of World War II. It was erected to: (1) remember those lost in the war, and pray for peace; (2) pass on the lessons of war; and (3) serve as a place for meditation and learning (see http://en.wikipedia.org/wiki/Cornerstone of Peace). The Peace Memorial Park and Museum have been visited by numerous students and pupils from mainland Japan for peace study. Masahide Ōta, then the Governor of Okinawa Prefecture detailed in his book of the same name Okinawa: Heiwa no Ishiji (1996). The name 'Cornerstone of Peace' alludes to the Japan-US security partnership. Ōta writes it “would not be an exaggeration to say that the motivation which led to build this 'Cornerstone of Peace' has also become the basis for the people of Okinawa to devote their heart and soul, night and day, to solve the military base issue” (Ōta, 1996). When US President Bill Clinton visited the Cornerstone of Peace in 2000 he delivered a speech promising efforts to reduce and consolidate US bases in Okinawa, as previously agreed by the US and Japanese governments. The Cornerstone of Peace is inscribed with the names of all those who died, regardless of nationality, civilian or military status. As of June 2015, there were 241,336 names. The breakdowns of the inscription are 149,362 from Okinawa Prefecture; 77,402 from other prefectures of Japan; 14,009 from the USA,; 82 from the UK; 365 from the Republic of Korea; 82 from North Korea; and 34 from Taiwan. A significant aspect of the Battle of Okinawa was the greatest loss of civilian life which far outnumbered the military death toll.

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The U.S. bases have been the most controversial socio-political and economic issue since the inception of the U.S. occupation of the island. It is not an exaggeration to say that Okinawa’s daily life has revolved around U.S. bases. Okinawa’s economy has been and is still dependent on U.S. bases. This was the case particularly in the 1950s and 60s. At the same time, however, bases have always been associated with The Battle of Okinawa, which devastated not only the Islands’ properties and priceless cultural assets preserved for centuries, but also implanted a key “cultural cord” into the minds of the islanders, namely nuchidotakara (life is the most precious thing in the world).

(Kadena Airbase)

(Rock Music)

(American Fast Foods)

The anti-base movements have intensified as time has passed not only from the standpoint of anti-war sentiments, but also due to the detrimental consequences of having bases in Okinawa such as environmental pollution and heinous crime committed mostly by the Marines which make up more than sixty percent of the troops stationed on Okinawa. Hamamoto, a Hawaii born UC Davis professor, describes the presence of US bases on Okinawa as “soft colonialism” which, unlike “neocolonialism” or “postcolonialism”, functions culturally and physiologically to maintain unequal, exploitative political relationship (Hamamoto, 2006). The U.S. bases also gave birth to new professions such as garden boys, housemaids, dry-cleaners, and drivers and prostitutes who also bore biracial children. Biracial children were called konketsuji (mixed blood children) or ainoko (half-breed children). They suffered discrimination and prejudice in the Okinawan community, partly because people tended to connect them with the sex entertainment industry that catered for American soldiers in Okinawa. These terms, however, have evolved into hafu (half) or daburu (double) to be positively used in Japan today to describe all racially mixed

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people. The term Amerasian (children fathered by U.S. servicemen on the island of Okinawa), which was coined by Pearl Buck, the first American woman to win the Nobel Prize for Literature, has been frequently used today (see Murpy-Shigematsu, 2002). Although they still face discrimination and hardships in Okinawa, their social status has remarkably improved due to their exceptional talents, particularly in the areas of music, sports and performing arts. According to Suzuki, there are about 2,000-3,000 Amerasians in Okinawa (Suzuki, 2003). It is interesting to note here that despite the U.S. occupation of Okinawa, including the use of the U.S. dollar as Okinawa’s legal currency, Okinawa never picked up the custom of tipping. Compared with Hong Kong, Singapore and the South Pacific which were under British and American colonial rules, Okinawa’s overall English proficiency is lower. It also never surpassed that of mainland Japan, which was occupied by the Americans for seven years. Even after forty years of Okinawa’s reversion to Japan, Okinawa still hosts 74% of all U.S. military bases in Japan, and the bases are continuously a hot socio-politico-economic issue. Although the majority of islanders are against the presence of the U.S. bases, they are fully aware of the economic consequences of the base withdrawal. Researchers have just begun to investigate how the presence of U.S. bases, which is an enclave zone in Okinawa, intertwine with the local culture and shaped Okinawa’s lifestyles positively as well as negatively (Yamazato, 2005). It will take time to untangle the complex knots of cultural influence and confluence.

3. The Role of Champuru Culture Okinawan ideas and values such as champuru, icharibachode (once we meet, we are like brothers and sisters), chimugurisan (someone’s pain is my pain), yuimaru (reciprocity) and nuchidotakara (life is the most precious thing in the world) developed out of a long, dynamic process of island life. This rich, diverse cultural heritage is today appreciated within and beyond Okinawa, particularly in mainland Japan. It may be appropriate to quote Professor Haruo Misumi: “Okinawa is a place where its art culture has surpassed that of Japan and has grown to the scale encompassing the whole of Asia” (Misumi, undated). Even “traditional” culture is subject to change over time, and quite often it changes without notice by the indigenous people. As we have seen, Okinawan culture has changed gradually, due to external interventions as well as by self-generating endogenous forces. For a small island society in particular, external forces can render significant changes.

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Okinawan culture, notably music, dance, language and Okinawan food (pork), however, recently have become popular in the Japanese mainland and abroad. Eating pork has been looked down upon in Japanese society for many decades. “The third party appreciation” of the Okinawan culture has provided the Okinawan people with enormous pride in their culture and identity, and it encouraged the promotion of local cultural activities such as traditional music, dances, karate, arts, healthy foods including pork dishes and even uchinaguchi (Okinawan dialects) which were considered as an inferior language in the past. This is what I call a “cultural virtuous circle.” The virtuous circle is typically demonstrated by the activities of overseas Okinawans, or "Uchinanchu" in the local dialect, who migrated to Hawaii, North and South America, Southeast Asia, the South Pacific and other areas. It is estimated that these overseas migrants and their descendants, excluding mainland Japanese, numbered about 400,000 in 2011. It is interesting to note that the third and fourth generations of emigrants from Okinawa are increasingly more concerned and more appreciative of their ancestors’ culture than their parents and grandparents. This is particularly so when the cultural value and lifestyle of Okinawa is highly appreciated by the world community. This coincides with Lowenthal’s observations on emigrant communities:

Networks of obligation with homelands may persist for generations, as Cook Islanders in New Zealand and Paupans in Australia show. Diaspora communities like Guamanians in California and West Indians in Toronto retain or replicate so much island culture they can be said to replenish rather than diminish the home society. Indeed, emigrants whose education and economic success foster self-awareness assert their land identity more strongly in exile than those at home (Lowenthal, 1998). Yuimaru is an Okinawan dialect that means “reciprocity.” It is the Okinawan concept that is rooted in old work-sharing practices where all villagers cooperated to help each other with financing, planting, constructing houses and irrigations, and harvesting crops. Yuimaru spirit is still vividly alive in Okinawa in various festivals, mutual finance system called moai and community activities. This is a social “safety net” system to prevent individuals or communities from collapsing. The value of yuimaru is also re-evaluated as globalization, or Americanization of lifestyles, a symbol of cut-throat competition and rigid individualism, prevails and affecting adversely Okinawa’s lifestyles of health and sustainability (LOHAS). Okinawa is now a booming tourist resort for mainland Japan. A typical mainlander, who used to blame an Okinawan for his or her backwardness, and easygoing attitude

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towards work, is reported to say that “every nation and citizen can live in peace. I am very proud of this original Okinawan idea and I would like to diffuse this “yuimaru mind” all over the world. Okinawa’s comparatively easygoing and time-loose lifestyle is also gaining popularity to ease the various stress and pressures arising from workplaces and complex human relations. "Uchina time" (unpunctual Okinawan time), which was almost totally replaced by “Yamato time” (Japanese time) a long time ago, has also been gradually revived as a result of a general acceptance of “slow-life” and healing-oriented lifestyle reflecting Japan’s rapidly aging society. Japanese society is, no doubt, ailing and aging. Japan’s international status has been weakening in the 21st century due largely to its declining relative economic power, aging population, and above all its inward-looking culture and politics. Japan is the least open society among the OECD countries. This character is deeply rooted in its culture and in its racially homogeneous peoples who tend to reject cross-cultures. Despite more than a century of assimilation and Okinawa’s painstaking efforts to be a part of Japan, “Japanese are not capable of accepting Okinawans as full-fledged members of the national family…” (Smits, 1999). As we have seen, however, there are an increasing number of mainlanders who favorably evaluate the Okinawan lifestyle and wish to live in Okinawa in recent years. There has been an interesting phenomenon in population flows in recent years. The indigenous population of Okinawa’s outlying small islands have continuously emigrated to neighboring larger islands, while an increasing number of Japanese mainlanders have been attracted to the leisurely “island lifestyle.” If such a trend in population dynamics continues, we may see the entire population of these islands being replaced by mainlanders in the future. Nobody can predict the socioeconomic impacts of these cultural dynamics (Kakazu, 2006). Okinawa’s champuru culture represents not only cultural diversity which is a norm of international society, particularly in the Asia-Pacific, but also it empowers the local people through healthy lifestyle and warm yuimaru spirits. Okinawa is the only local prefecture in Japan whose population is still growing. There is a no nonsensical joke that Okinawans will be the last Japanese to survive in the 25th century if the current depopulation on the mainland continues. The strength of champuru culture is its resilience and flexibility towards external flexibility (see Oshiro,1972 and Okamoto, 1972). This strength has probably been nourished through its enduring history of ambivalence, war and colonial rule. At the same time, the champuru culture has bred a dependency syndrome culturally as well as economically. Okinawa will play a very important role in

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contributing to Japan’s future development in the age of Asia-Pacific. I have found an influential Western “Okinawanologist” who argues that: Japanese history could only be understood in light of the history of Ryukyu…it must not be understood as a ‘minority’ on an ethnical, cultural, or any other sense: Ryukyu and its culture as well as its language form one of two main equal pillars of support, standing side by side, which hold up the Japanese culture. Only the realization of this fact makes it possible to appreciate the immensely rich diversity of Japanese culture (Kreiner, 2001). Another world-class self-confessed “Ryukyuanist,” Taira Koji has also rediscovered the future role of Okinawa: A strong sense of self-reliance refined by increased interactions with the world at large will enable Okinawans to see Japan as just another country and see themselves deserving of their own nation and state on an equal footing with any nation-state. A long-awaited third golden age will then dawn on Okinawa (Taira, 2001). Although Okinawan Champuru culture is Japan’s “marginal culture in a marginal or peripheral region,” it does contain a spirit of reciprocity or mutual help and stability which are also common cultural characteristics in Asia. This is why Asian visitors to Okinawa feel at home when they have discovered the Okinawan motto: icharibachode.

4. Okinawa: The Real Shangri-La?

According to George Kerr (1958), the best-known American historian on Okinawan history, the first Chinese emperor, Ch’in Shih Huang Ti (221-210 B.C.) sent several missions into the Eastern Sea in the direction of the Ryukyu Islands to search for the secrets of immortality. Thousands of years later, others are following in their footsteps. The latest book on The Okinawa Program: Learn the Secrets to Healthy Longevity by Willcox, Willcox and Suzuki (2001) became a best seller in the United States by scientifically proving the secrets of Okinawan world-renown longevity. They cited the ancient Okinawan proverb:

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At seventy you are but a child, at eighty you are merely a youth, and at ninety if the ancestors invite you into heaven, ask them to wait until you are one hundred, and then you might consider it (Willcox, Willcox and Suzuki, 2001).

A Shangri-la, the land of happy immortals sought by many Chinese as well as European emperors, portrayed in James Hilton’s best-selling book Lost Horizon. Willcox, Willcox and Suzuki used Shangri-la as a metaphor based on a painstaking investigation into Okinawan longevity:

There are more than 400 centenarians in a population of 1.3 million---about 34 per hundred thousand---many of them still healthy, active, and living independently. In the United States, there are only five to ten centenarians per hundred thousand---a huge difference---and most older Americans are in far less robust health (Willcox, Willcox and Suzuki, ibid).

(Source: Dr. Kazuhiko Taira, 2008) Okinawans’ longevity is, no doubt, the product of a complex combination of climate, culture, closely-knit social organizations, food and lifestyle as is shown in the following chart. The above authors have discovered that food culture is particularly important for the healthy life. The most

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popular Okinawan dishes are the various champuru recipes, notably goya (bitter gourd) champuru. Goya and its products have become best-selling health foods in Japan in recent years.

(Goya Champuru)

(Ashitibichi, Pig Feet)

OKINAWA’S SUSTAINABLE DEVELOPMENT

1. Characteristics of Island Economies Like many other small island economies, Okinawa’s economy possesses general characteristics that have presented challenges for its economic development: (a) specialized rather than diversified economic activities; (b) a small domestic market; (c) reliance on a limited number of primary products and tourism for export earnings and simultaneous dependency on imports of consumer and capital goods; (d) chronic trade balance deficits; (e) diseconomies of scale; (f) high transportation costs; (g) rising population pressure on a small arable land area, and; (h) a heavy reliance on government expenditures and activities as a major source of income and employment. Unique sociopolitico-economic development problems will arise when the "island" is associated with its smallness, isolation and its location at international borders (Kakazu, 1994). The general characteristics, merits and

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demerits of small islands from the standpoints ofsocioeconomic development can be summarized in FIG. 6.

FIG. 6. MAIN CHARACTERISTICS OF SMALL ISLAND SOCIETIES

Source: Kakazu (2012)

Although it is true that a small island economy intrinsically endowed with demerits than its merits in conducting sustainable development, there are a number of characteristics which can be considered as economically advantageous in comparison with larger economies as shown in the figure. Among them are being unimportant in external commercial policy and having more unified national markets, greater flexibility, and perhaps greater potential social cohesion. Prasad (2004) vividly demonstrated that “the importance of being unimportant“ has allowed many small economies to pursue distinctively national policies seeking favorable deals which concede special advantages such as sales of passports (Kiribati, Samoa, FSM), internet domain names (Tuvalu), shipping registries (Vanuatu), fishing rights (Pacific islands), postage stamps (Tuvalu) and military bases (Okinawa, Palau, Marshall Islands). The South Pacific countries also “sell their sovereignty” to other countries in order to finance their budget or to get foreign aid. The huge expanse of ocean surrounding these island masses may also provide rich marine resources and natural energy which can be tapped for future economic development, as highlighted by the recent dispute regarding

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Senkaku/Diaoyu Islands and nearby undersea oil and natural gas resources (Kakazu, 2016). Okinawa, for example, is making extensive use of ocean resources through aquaculture, the utilization of deepsea water for various health products and marine or “blue” tourism such as whale-watching and scuba diving. Small islands may also have comparative advantages in environment-friendly economic activities such as recycling, reusing, and reducing the environmental hazards. Small islands could become model cases of zero-emission societies. Okinawa has been emerging as a model island of environmentally friendly practices and products, including recycling used bottles, and producing ethanol from sugarcane and waste materials. The principal focus of this manuscript is to discuss Okinawa's future development potential and to advocate a number of positive development strategies.

2. Population and Employment

One important indicator of economic performance is population growth, which signifies economic dynamism. This indicator is particularly important in the Japanese regional context where almost all rural prefectures have experienced depopulation as a result of declining birth rates and net outmigration. Japan's total population started declining in 2008. Furthermore, the rapidly aging Japanese population has become a source of much pessimism, since it may eventually deprive the Japanese economy of innovative thinking andsocioeconomic dynamism, while leaving heavy welfare cost burdens to future generations. Okinawa's population increased from 970,000 in 1972 to 1.4 million in 2015. This balances out to an average annual growth rate of 1.3%, compared to 0.7% in Japan proper including Okinawa Prefecture. Okinawa is the only prefecture, which has more than doubled its population since World War II. Okinawa has experienced very unique patterns of population growth in recent years. Social change turned from negative to positive after 2009. This means that Okinawa has attracted more inmigration, mostly mainlanders than its out-migration. This is particularly true after the Great Eastern Japan Earthquake which occurred on March 11, 2011 in Japan’s northeastern region. The powerful tsunami and subsequent meltdown of nuclear reactors claimed the lives of more than 20,000 people, including missing, as well as more than 200,000 people were relocated across Japan including Okinawa.

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In the past, Okinawa quite skillfully balanced her limited land resources, particularly in terms of food production, with population growth. Out-migration became the primary mechanism for keeping the population of Okinawa at a sustainable level. During the early years of migration, around the turn of last century, people were driven out of Okinawa by conditions of abject poverty and were regarded as "kimin," or deserters. In contrast, today they have become important catalysts for exchange between Okinawa and the rest of the world. It was only quite recently, however, that they actively organized themselves to enhance their "Uchinanchu identity" beyond national boundaries. A rapid population increase after reversion, accompanied by a proportionally larger labor force, has generated a continuous labor surplus in Okinawa's job market. Over the post-reversion period (from1972 to the present), the labor force has increased by 2.3% annually. Although local employment has also increased by 2% annually during the period, it has not been enough to absorb the increased labor force. Consequently, the jobless rate jumped from 3% in 1972 to about 7%-8% in recent years, which are about twice as high as Japan proper. The creation of jobs has been the most important economic and political agenda in Okinawa since reversion. Okinawa's unemployment structure is unique nationally, in the sense that young people (those under age 30) account for 36.2% of the total number of unemployed compared with 28.2% in Japan proper. Young unemployed people have largely been supported by pooled family incomes and by an age-old Yuimaru, or mutual help system. This explains why there is little social unrest despite a high, persistent unemployment rate. There are two types of the unemployed. One type is “the voluntary unemployed,” who resigned jobs voluntarily, have accounted for nearly 60% of the unemployed workers in recent years. This type of self-unemployment is mainly attributable to mismatches between the job seekers or demand and job offers or supply in Okinawa’s labor market. Although tourism is the most promising and growth-oriented industry in Okinawa, the educated younger generation tends to look down on the industry due not only to its relatively low pay, hard work, but also to its low social status compared with the public service sector. This is a general phenomenon in developing island societies where the public service sector dominates economic activities. In light of weakening family ties and social safety net, also known as “social capital,” growing competition and an aging population, unemployment within Okinawan society will become increasingly more difficult to manage in the future. There is plenty of evidence that unemployment has many far-reaching effects other than loss of income, including psychological harm, loss of work motivation, skill and self-confidence, increase in ailments and morbidity, disruption of family relations and social life, the hardening of social exclusion and gender asymmetries

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3. Economic Performance and Living Standards

Okinawa's real gross Prefectural product (GPP) has grown on average by 4.2% annually over the post-reversion period (1972-2012). At the same time, however, the growth rate has declined continuously from 9.9% in the 1970s to 3.6% in the 1980s, 1.2% in the 1990s and 1.1% in the first decade of the 21st century. Real growth rates picked up during this latter period due mainly to declining GPP deflators. Although Okinawa’s GPP performed better than Japan proper in the postreversion period, growth rates roughly synchronized with the national average, particularly after the third and fourth development plans. Okinawa’s relatively higher economic growth than Japan proper, particularly during the 1980s, contributed to narrowing the gap (kakusa zessei) in living standards between the Japanese mainland and Okinawa. Okinawa's per capita income (PCI) increased from US$1,877 or 58% of the national Japanese average in 1972, to US$25,000, or 74% of the national average in 2012. Okinawa’s per capita income in terms of purchasing power parity (PPP) is now higher than some Japan’s rural prefectures where populations have declined continuously and therefore contributed to the rise in per capita income. The size of the population or GPP is not directly related to the level of per capita income (FIG. 7). FIG. 7. POPULATION & PER CAPITA INCOME OF OKINAWA'S OUTLYING ISLANDS, 2012 1000 persons 250.0

48.2

Per capita income Okinawa = 100 (left scale)

47.7

50

45

200.0

40 35

150.0

30 25

100.0

20

Population (right scale)

15

8.4

50.0 0.5

1.2

1.5

0.4

0.7

10

4.8

3.9

1.5

0.9

1.2

0.0

0.8

5 0

Source: Constructed by Kakazu. Data were obtained from Statistics Division, Okinawa Prefecture.

It is interesting to note that per capita incomes of “micro” and remote islands are higher than the average per capita income of Okinawa Prefecture and Naha City, the largest municipality in

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Okinawa by any measures. This is due largely to the expansion of tourism and tourism-related industries which promoted the islands’ industrial structure from a low income primary industry to a high income tertiary industry centered on tourism. This suggests that the tourism industry is the main engine to sustain both population and standards of living on small, remote islands. High per capita incomes of Tonaki, Yonaguni, Tokashiki, Taketomi and Zamami are due largely to the expansion of tourism and tourism-related industries which promoted the islands’ industrial structure from a low income primary industry to a high income tertiary industry centered on tourism (Kakazu, 2011). This suggests that the tourism industry is the main engine to sustain both population and standards of living on small, remote islands. Okinawa’s tourism industry has deepened with time and space in recent years as seen in the following tourism penetration index. This suggests that the tourism industry is the main engine to sustain both population and standards of living on small, remote islands as seen in the following tourism penetration index (FIG. 8).

FIG. 8. TOURISM PENETRATION INDEX, 2011-2012 70 60

％

%

13.5

Tourism Receipts/GDP (left scale, %)

50 40

30 20 10

7.8 6.1

5.7

Tourism Penetration Index （bar, right scale, %）

5.5 4.2 0.8

0.6

0

0.4

0.4

0.1

0.2

0.1

0

0

16 14 12 10 8 6 4 2 0

Note： "Tourism penetration＝Number of tourists/Resident popultion"；All others except Ishigaki,Okinawa, Miyako and Hawaii are for 2011. Sources: Constructed by Kakazu based on data ADB and OPG data.

There are three main engines that have contributed to Okinawa’s post-reversion growth rates (FIG. 9). Public expenditure is the single most important item, accounting for 30-40% of Okinawa’s GPP in recent years, followed by income generated from tourism (10-11%), and U.S. military base

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expenditure (5%). Immediately after reversion, public expenditure, mostly in the form of fiscal transfers from the Japanese government, replaced U.S. military expenditures within the local economy as the main engine of growth. The amount of public expenditure, however, has declined in recent years owning to Japan’s increasing public debt. Therefore, public expenditure is not expected to play as an engine of Okinawa’s future growth.

FIG. 9. OKINAWA: THREE ENGINES OF GROWTH 1972-2012 (% OF GPP) 80

%

Self-sufficiency rates

70 60 50

Public expenditures/GPP

40 30 20

Tourism incomes/GPP

U.S. base income/GPP

10 0 1972

1980

1990

1995

2000

2005

2012

Notes: Self-sufficiency rate = 1 - (Total imports/Total demand) GPP = Gross Prefectural Product Source: Statistics Bureau, Management and Coordination Agency

The second important economic growth factor is the tourism industry. The number of visitors to Okinawa has increased more than 15-fold, from 440,000 to over 7 million during the period 19722015, which constitutes an annual increase of 4% compared to a GPP growth rate of 2.5% as is fully discussed later. The relative importance of U.S. military base expenditures, including the wages of civilian employees, base land leases, and base-related expenditures by U.S. forces and their dependents for local products and services, has declined from 15.5% of GPP in 1972 to about 5% in recent years. The U.S. bases, however, still generate 200 billion yen annually, and provide employment for about 9,000 local people. There are always more local job applicants for base employment than jobs available, owing mainly to the lack of stable and attractive job opportunities in the local market.

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Beyond that, a large chunk of Japanese central government transfers are directly and indirectly related to the maintenance of bases. Okinawa’s overall self-sufficiency rates defined in the footnote of the above figure improved continuously after reversion until the 1980’s, from 30% to over 60% in recent years, reflecting diversification and the expansion of the economy. After the collapse of the economic bubble and the ensuing globalization-cum stagnation in the 1990s, sufficiency rates have flattened out. Since the mid-2000s, however, self-sufficiency rates have improved gradually supported by labor-intensive service industry, notably local-oriented tourism, construction activities and ICT-related industries. It should be noted, however, that these domestic supply-oriented industries have expanded as a result of the increased external receipts from central government, tourism and U.S. military expenditures. An increase in the self-sufficiency rate does not necessarily mean self-sustainable development because it can be increased by spending through external borrowing. The average life expectancy of women in Okinawa is eighty-six years, one of the highest in the world. There are many explanations offered for this longevity, including food, water, climate, easygoing work habits, communalism, and even DNA. However, an in-depth study has not yet been conducted. In recent years Okinawa’s lifestyles of health and sustainability (LOHAS) have attracted retirees from the mainland who wish to spend the rest of their lives in Okinawa. Not all has been rosy, of course. High economic growth has inevitably been accompanied by environmental degradation, notably air and water pollution, as well as soil erosion that require comprehensive study and the adoption of serious measures. The widening income gap among households as measured by the Gini index is also of concern. A sense of inequality among islanders has been intensifying in recent years. Although the jobless rate improved substantially, the number of Okinawa’s households on the welfare assistance program has risen sharply in recent years reflecting the increasing number of working poor (FIG. 10). More than 40% of full-time workers and about 60% of part-time workers earned less than four million yen and one million yen, respectively, in 2014.

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FIG. 10. INDICATORS OF SOCIAL SAFETY NET, 1980-2014

number of recipients

Jobless rate, %

30,000

30.0

27.0 25,000

24.0 21.0

20,000

Recipients of welfare assistance (number of households, left scale)

18.0

15,000

15.0 Jobless rate (right scale)

10,000

12.0 9.0

6.0

5,000 5.1

5.0

3.9

1980

1985

1990

5.8

7.9

7.9

7.6

4.5

0

3.0 0.0

1995

2000

2005

2010

2014

Source: Okinawa Statistical Yearbook , various issues

Okinawa’s savings and property ownership are more unequally distributed than Japan’s. It should also be noted that Okinawa’s average household savings is less than one-half of Japan’s. Another factor for widening income inequality is the growth gap among the industrial sectors. The per capita income of the service sector, for example, more than doubled in the past decade, while the income of the primary and secondary sectors grew much less, reflecting the upward trend of tourism-oriented activities.

3. Industrial Structure

It is a well-established "empirical law" that the industrial structure shifts from agriculture to manufacturing, then to service-related activities with the rise in per capita income, mainly because the income elasticity of demand for various consumption goods historically favors manufactured

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products over agricultural commodities. The shift in demand for manufactured goods and services implies an increase in the size of the markets, inducing increased productive capacity and efficiency. The structure of the Okinawan economy is very similar to that of Hawaii. In both cases, the service industry dominates economic activities. Agriculture, which was the dominant industry during the 1950s, now accounts for only 5.2% in terms of labor force and 1.8% in terms of income. Empirical law discovered by Kuzunets (1965) and others suggests that the agricultural sector tends to generate low incomes in part because of the low income elasticity of its products as a whole compared to those of other sectors; as the cost of producing farm products falls with technological progress, prices tend to fall as well. Moreover, the skills required for traditional agricultural production are fewer and do not demand extensive higher education. Okinawa has followed this pattern more than any of Japan’s other prefectures. Although Okinawa's agriculture has been diversifying away from traditional sugarcane and pineapple cultivation to flowers and vegetables, such as chrysanthemums, orchids and goya (bitter melon), and tropical fruits such as mangoes, citrus and dragon fruit, the relative contribution to Okinawa's GPP may continue to decline in the future as a result of increasing international competition, stagnated productivity gains, and aging farm workers. Okinawa's average monthly wage per manufacturing worker, for example, was US$2,706 for 2012, which was about twice as high as that in Taiwan and Hong Kong, where per worker productivity is higher than in Okinawa. That is to say, the unit labor cost in Okinawa (wage per worker/per worker productivity), which determines international competitiveness, is more than three times higher than those countries mentioned. The unit labor costs in Okinawa are high not only in comparison with its neighboring economies, but they have also increased in recent years. Despite the continuous decrease of wages, Okinawa's unit labor costs in the manufacturing sector have continuously increased in recent years. This would indicate that Okinawa's domestic as well as an international comparative advantage in the manufacturing sector has substantially weakened after reversion despite some protective measures by the government. Reflecting Okinawa's high cost economic structure, particularly in the manufacturing sector, the income share in the manufacturing sector has declined sharply from 10.9% in 1972 to 4.5% in 2012 which is very low compared with that of Japan proper (18%), Taiwan (27%) and Singapore (15%). It is a historical fact, for any self-sustaining economy, both at the national and regional scales that the income share (GPP) of the manufacturing sector rises to about 30%, and then declines as demand shifts to service-related activities. In the case of Okinawa, however, the share never rose above 11%

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in the past, owing to the fragile industrial structure, coupled with a massive inflow of demand for construction and service-related activities including tourism. There is a consensus amongst policy makers and researchers that the development of a large-scale manufacturing industry in Okinawa is simply not viable, either now or in the future. Okinawa’s local markets are small, fragmented and far away from major markets; wage and rental rates are far higher than those in neighboring Asian countries; and the level of human resources and technology development are low. We should note, however, that if the Okinawan economy had developed along the lines of the developing export-oriented manufacturing industry, as was done in many Japanese rural prefectures, it might have suffered heavily from structural adjustments, particularly after the rapid appreciation of the yen in the mid-1980s. At the same time, there is a consensus among policy makers that local resource-oriented, niche industries such as food, particularly health food, tropical fruits and flowers, crafts and tourism-related products have the potential for further development. Moreover, these, agroproducts are gradually capturing a niche in the mainland and Asian markets as discussed later. The local rice wine named "Awamori," for example, has been gaining popularity within the mainland market because of its vintage taste. It was originally introduced into Okinawa from Siam (Thailand) sometime in the 15th century and has been continuously refined to the point of becoming internationally recognized for its quality. Interestingly, even with the highly protected domestic Japanese rice market, Okinawan "Awamori" has been thriving with imported Thai rice.

The Oriental Scotch: Ryukyu Awamori

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4. Trade Imbalance and Sources of External Finance As a direct result of the narrow range of their resource base and production conditions, small island economies depend upon a few primary products for their export earnings, while importing a wide range of consumer goods as well as capital goods. As a result, most of the small island economies, including Okinawa, have been suffering from chronic deficits in trade balances which have largely been financed by growing inflows of remittances, fiscal transfers or ODA, including military expenditure, and tourism incomes. Remittances by out-migrated workers are the single most important source of national income for many small island economies. Dependency on official transfers, which have contributed to enlarge the public sector and bureaucracy, has been gradually replaced in its importance by tourism incomes in recent years. These trade and finance characteristics are vestiges of colonial heritage and policies. Bertram and Watters characterized these island economies as “MIRAB” economies, where MIgration, Remittance, Aid and resultant urban Bureaucracy become central to the socioeconomic system (Bertram and Watters, 1985). In view of the increasing importance of the tourism industry in these islands, MIRAB should be renamed as MIRABT, where T stands for tourism.

Okinawa also depended heavily on remittances of migrated workers to finance its trade deficits before World War II. The sources to finance the deficits have changed dramatically after the war. The U.S. military expenditure was the most important source of foreign earnings up to Okinawa’s reversion to Japan. After the reversion, however, fiscal transfers from the Japanese government financed about 50% of Okinawa's total external payments, including imports, followed by receipts from exports (37%), tourism (19%) and U.S. base-related expenditures (10%) (FIG. 11). These actually add up to more than 100 percent because the external sources of finance exceeded Okinawa's trade deficits. That is to say, Okinawa's economy has recorded a sizable surplus in its current account balances, indicating Okinawa has become a "net capital exporter."

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FIG. 11. OKINAWA'S BALANCE OF PAYMENTS, 1985-2012 ￥million

25,000 Total receipts

Current account surplus 20,000 Total payments 15,000

Imports

10,000 Fisical transfers 5,000 Tourist expenditures U.S. millitary expenditures 0 1985

1990

1995

2000

2002

2004

2006

2008

2010

2012

Note: "Imports" includes goods and services. Sources：Okinawa Prefectural Government, Okinawa Statistical Yearbook, various issues.

A heavy dependency on fiscal expenditures, which are mainly financed by public debts, has been a global issue, particularly after the European sovereign debt crises triggered by Greece. Greece’s public debt amounted to 177% in 2014 according to the International Monetary Fund (IMF). It should be noted, however, that Japan’s cumulated public debt was about 246% of its GDP or $14 trillion in the same year, the largest percentage of any nation in the world. Still, the amount of Japan’s new government debt is expected to eclipse expected tax revenues for the coming years. Unlike Greece, Japan’s debt has been financed by its own savings, so-called “risk-free money” instead of foreign borrowings which must be repaid by foreign currencies. We all know, however, that a continuing accumulation of public debt is not sustainable because it must be paid by future generations by raising taxes, cutting public expenditures or creating hyperinflation by printing more money unless continuous real economic growth is not realized. Okinawa has to reduce its high dependency on fiscal expenditure for its sustainable development.

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5. Entrepreneurship and Human Resources development

Despite the various incentives and preferential measures to promote industry over nearly four decades of implementing long-term economic development plans since reversion, the Okinawan economy is still on the long way towards achieving self-reliant or self-sustainable development, that is to say, financing its mounting trade deficits and reducing the high unemployment rate through internally generated economic growth. Economists and policy makers have persistently pointed to the lack of entrepreneurship, that is, the lack of initiative, well-conceived plans, actions, self-assessment and calculated risk-taking on the part of the private business sector. It can only be an idle dream to talk about sustainable development for Okinawa without strategically nurturing entrepreneurs who must play a vital role in this age of mega-competition. Policy-oriented development institutions such as the ODFC are involved in assisting the private sector initiatives. Nurturing entrepreneurship is profoundly linked to human resource development. The subject has been a hot topic for many years because Okinawa, with limited natural resource endowments and with small markets, must pursue its development efforts through effective utilization of its relatively abundant human resources. Compared to Japan proper, where the population started to decline in 2005, Okinawa's population is expected to increase until 2025. This effectively means that Okinawa will be a position to supply portions of the labor force for Japan's future development provided, of course, that this labor supply is well-educated and skillfully trained. One worrying aspect of Okinawa's human resource development, however, is the close to stagnant trend of college enrollment rates (percentage of college and university enrollments against the number of high school graduates) which actually declined from 21.3% in 1972 to 19.1% in 1980. Although the enrollment rate picked up to 37.3% in 2015, it was much lower than Japan's 51.5%, itself a remarkable improvement from 29% in 1972. Although household affordability for higher education in terms of per capita income increased by more than 5 times during the period, two important reasons for this stagnant trend of college enrollments can be isolated. One is increased cost of higher education, particularly in Okinawa prefecture where seven local universities and two junior colleges accommodate about a half of applicants; the remainder must leave for more expensive mainland colleges. A recent development, however, is encouraging for Okinawa’s human resources development in the area of science and technology. The Okinawa National College of Technology (ONCT), a

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professional training college on the subjects of machinery, information, media and bioresources technologies, was established in 2002 in Nago City. Okinawa was the only prefecture in Japan where such national polytechnic college did not exist until 2002. Another recent development is the establishment of the Okinawa Institute of Science and Technology Graduate University (OIST) which inaugurated in November 2011. The OIST, based on the five basic concepts, namely “Best in the world,” “International,” “Flexible,” “Global network,” and “Collaboration with industry,” will become a leading intellectual hub in Okinawa for the Asia-Pacific region in the fields of bioscience, chemistry, computer and information science, engineering, mathematics and physics. The OIST is totally financed by the Japanese government for at least next ten years. After that it has to earn its operational funds based on its own research and educational reputation and achievements. Various enterprise incentive systems for improving the quality of human resources are available, including tax breaks, investment tax credit, tax withholding for “Engel” investors, low interest rates, loan guarantee, subsidies for rental facilities, on-the-job training, and wages are available for new venture-type businesses. The Okinawa Employment Promotion Center, for example, subsidies onethird of wages for up to three professional workers for one year. In other words, if a new firm employs four young skilled workers, one worker will be subsidized for one year. Special incentive systems for new entries in the SFTZ will be detailed in the following section.

NEW FRONTIER FOR OKINAWAN AGRICULTURE

1. The Roles of Agriculture in Small Island Economies Agriculture plays crucial roles in economic development. As theory for “vent-for-surplus” (Myint, 1967) suggests, agricultural surplus (production over domestic consumption) is a kind of “savings” which will be used for investments in the manufacturing sector in the early stage of development. Increase in agricultural productivity is not only important for supporting increasing rural population, but also it is an essential condition for an economy to pursue industrialization. Therefore, in the early stage of economic development, agriculture is usually taxed for industrial development as an important source of industrial capital formation. In the later stage of development, however, agriculture is subsidized because of its declining productivity coupled with national food security.

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Mechanism of agricultural development for small island economies, however, is quite different from that of industrialized economies where industrial structure has transformed successfully from agriculture to manufacturing, then to service-oriented activities as per capita incomes have increased (FIG. 12).

FIG. 12. A MECHANISM OF ISLANDS’ AGRICULTURAL DEVELOPMENT

As is shown in the figure, the initial conditions of island economies are characterized by constant population pressure, limited supply of economic resources, notably arable land supply, traditional land-use systems and extremely limited market with high transportation and transaction costs. Diseconomy of small scale, which is directly related to agricultural productivity, may be the most important discouraging factor for successful agricultural development. Increasing out-migration, notably younger generation, from island societies has resulted in loss of human resources and indigenous technology. Low agricultural unit cost coupled with global competition led these islands to specialize in service-oriented activities such as tourism, offshore banking, information and communication technology (ICT) back offices in addition to remittances and external assistance which characterize as MIRABTO economy. Food security is particularly important for a small, isolated island economy where a stable supply of food is often interrupted by natural disasters such as drought, typhoons, tsunami and unexpected environmental changes. Quite often, for these small islands, domestic food supply is the last resort for

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survival when natural disasters occur. This is particularly true for small Pacific islands where islands are fragmented and located far from their major markets. Ironically, however, domestic food supply in these small islands has been neglected for a long time. As is fully discussed later, subsistence agriculture, which has provided basic necessity of foods to indigenous islanders, has been rapidly disappearing in all Pacific islands, including Okinawa. Increasing cheap and subsidized food imports at the expense of traditional food supply have been major issues in terms of food security and nutritional standpoints (Kakazu, 1994).

2. Two Approaches for Islands’ Food Security (1) Import-replacement and Import-displacement Approaches For most Pacific islands, there are two qualitatively different ways to produce domestic goods at the expense of exportable goods. One direction suggested by Demas (1975) is "import replacement," namely substituting domestic production for what they are now importing such as rice, canned fish and soft drinks which require new technologies, investments and large markets. This is the equivalent version of “import-substitution” which has been intensively discussed in modern development literatures (Kakazu, 1994). The Newly Industrialized Economies (NICs) such as, Taiwan, South Korea, Singapore and Hong Kong successfully adopted this approach. Taiwan, for example, initially imported personal computers (PC) from Japan and the United States, but in the later stage, she developed its own PC industry to become world’s major exporters The other approach is "import-displacement" which seeks to substitute traditional food products such as taro, yams, sweet potatoes, tapioca (cassava), paw paw, coconut juice, kava (piper methysticum) and fish for imported rice, flour, beer, coke and canned fish. The former direction may be more realistic than the latter if it is true that the island people may become so accustomed to the taste and convenience of imported foodstuffs that they do not want to return to a diet of traditional root crops. Judging from the experiences of other developing countries, however, there is a good probability that the import replacement approach will not only bring higher food prices, which may be resisted, particularly by urban dwellers, but it also may worsen the trade deficits through reduced export earnings and increased import requirements such as fertilizer inputs and capital goods for domestic production. On the other hand, the problems of traditional foodstuffs, to which import-displacement is directed, are not only a matter of distaste, inconvenience and non-marketability, but some of them are more expensive than imported foods in terms of calories and protein as is revealed by Harris (1982). It is clear, however, that given available resources, the import-displacement approach is generally more

50

effective than import-replacement in reducing the heavy burden of trade imbalances and improving the nutritional standards of the Pacific islands. Though the dependency on imported foodstuffs has been generally high for all Pacific economies, there has been a great deal of variation in the states of dependency from country to country. For example, the per capita food imports of French Polynesia, American Samoa, and New Caledonia were more than eleven times higher than those of Papua New Guinea and the Solomon Islands (Kakazu 1994,). Since the production and marketing conditions are also significantly different from country to country, there must be different approaches for reducing the dependency on food imports. For relatively resource-rich and subsistence-oriented countries such as Papua New Guinea, the Solomon Islands and Samoa, the import-displacement approach may be more successful than for much smaller and resource-poor economies. Ward (1979) has concluded that, under the present environmental conditions of Kiribati, import-displacement through local production of starchy root is virtually impossible. The same conclusion can also be drawn for Nauru, the Cook Islands and Tuvalu. In order to succeed in import-displacement strategy, other interrelated questions must be answered. Contrary to the general belief that arable land is extremely scarce and labor is underemployed in the subsistence sector of many Pacific islands, Desai (1975) reveal some convincing evidence that the chief scarcity factor is not land but labor. Young male laborers, who are most needed in subsistence food production, are the most likely members of the population to migrate to the urban centers. Despite the serious unemployment problems in the urban centers, these migrated workers are most likely to stay there or migrate further to the overseas urban centers. It should also be noted that foreign aid, particularly United States surplus food aid, has discouraged subsistence food production from both supply and demand sides; aid made these countries able to spend far beyond their means on imported foodstuffs which inevitably depressed the domestic food supply through adverse terms of trade. Although foreign aid in the Pacific islands is, to a large extent, considered to be the payoffs of political and strategic interests of donor countries, there has been a legitimate fear among concerned economists about the cumulative effects of foreign aid on the rising urban and consumption levels which might destroy the entire socioeconomic fabric of these small island nations.

(2) The Safe Minimum Standard (SMS) Approach Another approach to prevent these small island economies from collapsing is the SMS approach, which was originally conceived by Ciracy-Wantrup (1952) and recently highlighted by Yamauchi and

51

Onoe (1983). SMS suggests to us another possible criterion for finding a socially optimum balance between export and subsistence production. The concept, which was developed in the field of conservation economics, rests upon the idea that for certain classes of renewable resources in ecosystems where production is an important consideration, there are potential critical zones in their use which might lead to irreversible losses. Critical zones are those bio-physical conditions brought about by human actions, which would make it uneconomical to halt or reverse depletion. If we use a resource beyond the critical zone, not only will this result in the depletion of the resource, but also result in economic and social uncertainties which might threaten the continuity of a social group. The SMS approach to the production system of the Pacific island economies provides policy makers with a simple yet potentially powerful tool to achieve a balanced development between the export-oriented cash sector and the subsistence food sector. The quantification of such a standard is not an easy task and must depend upon the specifics of each situation. Institutional rules which define performance standards, in terms of practices and results, are typically involved. The conceptual framework can be adapted to economic development and food security strategies. For example, to obtain a numerical standard, we can begin with a "safe minimum self-sufficiency" rate of foodstuffs for an island economy. Such a rate might be derived from a minimum caloric requirement for survival of the population on the island. An effort along this line is currently being developed by Okinawa. The essence of the procedure is illustrated by the following example for Okinawa:

Minimum caloric intake for survival 2,000cal/day; Current average caloric intake 2,500cal/day.

Thus, the Okinawan people currently consume 2,500/2,000, or 1.25 times as many calories as necessary for the theoretical minimum level of calorie intake. Since the overall food selfsufficiency rate of Okinawa is currently 40%, this is 1,000 calories or 50% short of insuring human survival in case of emergency.

i.e.

(2,000 - 0.4 (2,500))/2,000 = 50%.

There are many technical problems involved in translating such a figure into rules governing production for domestic consumption vs. exports, and a major interdisciplinary effort is necessary.

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The operational application of the minimum caloric requirement approach among Pacific island countries awaits refinement of food consumption and dietary data, and such a hiatus may be remedied by current research efforts in this field. This concept of food security has much more practical meaning to the very small Pacific islands than large ones because of their isolation, unstable export incomes, and frequent occurrences of natural hazards such as tropical cyclones, droughts, earthquakes, tsunamis and the consequences of global warming. This approach can also be defended from the standpoint of improving the nutritional standards of the Pacific islands where malnutrition, due mainly to the increasing consumption of imported foodstuffs at the expense of subsistence foods, has emerged as the major developmental issue.

3. State of Agriculture in Okinawa Agriculture, which was the dominant industry in Okinawa in 1950s, now accounts for 1.2% of Okinawa’s gross Prefectural product (GPP) and 4.5% of total employment in 2014. The importance of agriculture tends to diminish as per capita income rises. This is because the agriculture sector tends to generate low incomes in part because of the low income elasticities of its products as a whole compared to those of other sectors—as the cost of producing farm products fall with technological progress, prices tend to fall. Moreover, the skills required for traditional agricultural production are less highly developed and do not demand extensive education. Of Okinawa’s agro-resources, sugarcane has been the most important cash crop, accounting for about 20% of all farm incomes and 50% of cultivated land. Incomes from sugarcane production, however, have declined significantly in recent years as a result of stagnant prices and productivity as well as increased international competition (FIG. 13). The farm gate price of sugarcane, on average, was 21,923 yen ($250) per ton for the 2014 crop year, which was about four times higher than the price per ton in Thailand. Moreover, the per-hectare planted land productivity of sugarcane has remained unchanged for decades. Okinawa's sugar industry has only been surviving through the government’s price support programs. These indicators demonstrate that Okinawa’s sugarcane cultivation will be diminished in the future, even under heavy government subsidy. Because of the declining trend of sugarcane cultivation, Okinawa’s uncultivated farm land has been expanding, particularly on Okinawa Island. Sugarcane, however, is the only cash product in many small, remote islands. Therefore, some kind of compensation scheme, such as direct

53

income provision, may be needed to obtain a consensus for pursuing Japan’s possible entry into the TPP. FIG. 13. OKINAWA’S AGRICULTURAL PRODUCTION, 1980-2014 450

(¥100 million)

400

Live stock

350 300

250 200 Sugarcane

150

Vegetable Flowers

100

50

Pineapple

0

1980 25

1985

1990

1995

2000

2005

2010

2014

(1,000ha, ton)

SUGARCANE 20 Are a harve s ted (1,000ha)

15

10 6.2

7.5

6.0

6.9

5.9

5.5

2000

2005

6.4

5.4

5

Yie ld/ha (ton)

0

1980

1985

1990

1995

2010

2014

Sources: Ministry of Agriculture, Forestry and Fisheries, Statistics of Agricultural Production and Income , various issues

4. Agro-industry Local resource-oriented agro-industry or “the sixth industry,” which is a concept of a consolidated package of agriculture, processing agricultural products and sales, is one promising area. Okinawa’s traditional, declining sugarcane has been revalued in recent years because of its high-valued alternative use (FIG. 13). Sugar-related inputs such as molasses and bagasse, which in turn can be transformed into urethane resins, particle boards, rum, wax, paper products, sweets and recently ethanol, have been pursued at many remote islands and local research institutes. The urethane products, which were developed by the Tropical Technology Center (TTC) in Okinawa, have an enormous potential for a wide-range of products from pet bottles to home and industrial appliances. These products are decomposable (biodegradable) and therefore can be substituted for environmentally hazardous plastic products if quality and prices are reasonably acceptable to users and consumers.

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FIG. 14.

DIVERSIFICATION OF SUGAR(CANE) PRODUCTS

Raw Materials

domestic

Intermediate Products

Final Products

supply from supply from supply from imported domestic imported domestic imported

sugar(cane)

molasses particle boards

ethanol sweets

bagasse

urethane resins

　

(TTC) rum ｅｔｈａｎｏｌ (Miyako Island) (Daito Island)

wax L-glutamine paper

Note: TTC = Tropical Technology Center originally developed urethane resins from molasses. Source: Kakazu, H. (2009)

Miyako Island, which is a major producer of sugarcane, has been designated by the national government to produce ethanol for fuel. Islanders are hoping to substitute this renewable and environmentally friendly fuel for gasoline in the future. L-glutamine can also be produced from sugar molasses. Dr. Yutaka Niihara, a hematologist and a former professor at the UCLA Medical School, patented L-glutamine therapy for the treatment of sickle cell disease. It is also used in dietary supplements and is claimed to be useful for a variety of different conditions such as depression, anxiety and insomnia. Pineapple production, another important traditional cash crop in Okinawa, has declined more rapidly than sugarcane for similar reasons. Only fresh pineapple and pineapple wine are holding their own, and this as a result of tourists' consumption. It is an urgent task for the local government to diversify from sugarcane-centered monoculture agriculture into high value-added agro-industry and other diversified cash crops such as flowers, health foods, tropical fruits, vegetables and livestock. One of promising and emerging agro-industries is coffee. It is not well-known that there are more than thirty coffee growers in Okinawa covering almost all major islands. Many people believe that coffee plants are grown in the “Coffee Belt” which is the area between the Tropics of Cancer and Capricorn. Okinawa is located the northern edge of the Tropics of Cancer (FIG. 15). There is already

55

a coffee company named “Nago Coffee” which has been producing and selling various Okinawa brand coffee products including specialty coffee beans, roasting machine, thresher, bread, royal jelly, jam, sweets, tea, coffee cups, etc. Nago Coffee has also a plan to manage café shops.

FIG. 15. OKINAWA BRAND COFFEE

Coffee-related Businesses (provided by Hiroshi Kakazu)

Coffee is location specific. Its flavor and taste differ vastly from region to region, even from farm to farm within any given region. Therefore, Okinawa with diversified island regions has a great potential to develop island specific brand coffee. Coffee plantation will make a good use of Okinawa’s uncultivated farmland which has been expanding in recent years. For the successful development of these resource-based products, several problems must be resolved. One important factor is the size of the market, which in turn, determines the cost of production. As can be typically seen in the case of integrated circuits, the initial unit cost of production is very high. But as the market expands, the cost is reduced approximately to one-half within a decade. Products such as urethane resins require a large segment of the market in order to compete with plastic products.

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The second important consideration is “cost escalation,” which will quite often accompany when local resources are used as raw materials or intermediate inputs. The price of Okinawan sugar, for example, is about four times higher than the international price because of government protection. High sugar cost means high costs for molasses and consequently for the production of urethane resins. Here the producers of urethane resins face a dilemma because they are obliged to import molasses in order to compete in the international market. The third important consideration is a stable supply of raw and intermediate materials with competitive price and quality standards. It's easier said than done. Despite growing uncultivated agricultural lands, Okinawa has supplied only a 40% of its vegetable demand, the rest has been imported due partly to occasional typhoon visits. It is important to realize that in order to diversify local products toward more value-added products, domestically produced raw materials must be available at international prices. Unless there are incentives such as subsidies and taxes, which will compensate for the cost disadvantage during the initial stages of production, an Okinawan producer of urethane resins would always choose imported molasses over the costly local alternative. Okinawa’s molasses have price competitiveness at the moment simply because there is not much demand for them.

5. Health Foods as a Growing Agro-industry

Okinawa is fast becoming a brand name connoting "health and longevity." Okinawa's longevity is the product of a complex combination of climate, culture, closely-knit social organizations, foods, and lifestyles. Greek physician Hippocrates said “let food be your medicine,” so food is considered to be the most important factor influencing longevity. “There is certainly strong evidence that some of the compounds in the herbs and medicinal plants regularly consumed by Okinawans have powerful antioxidant and positive hormonal effects, and few ill effects have been associated with using them as foods, condiments, spices, teas, or home remedies.“ Okinawans are accustomed to consuming less salty, mineral-rich foods than mainland Japanese. Okinawa has developed and marketed various health foods such as turmeric (ukon), bitter melon (goya or nigauri) products, naturally processed salt, sea vegetable products (mozuku, umibudo), ostrich meat, and various deep-sea water products to name a few well-known examples (FIG. 16). Sales of these health foods have jumped from ¥2 billion in 1995 to over ¥20 billion in 2004, but declined thereafter due largely to intense keen competition. The sales of health foods exceeded the

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sales of sugar, the most important agricultural cash crop in Okinawa for many years. Sales of health foods have been buoyed by increased attention to Okinawa’s world-renowned longevity, but also by enhanced health-consciousness among Japan’s aging population.

FIG. 16. OKINAWA'S MAIN HEALTH FOODS Salt

Goya

Mozuku

Sea Grape

Flat Lemon

Acerola

Peucedanum

Purple yam

Mango

Shell ginger

Aloe Vera

Ukon

Health foods possess comparative advantages in the uniqueness of resource use and technology which can be developed on a small scale basis. Furthermore, these products usually require more local inputs, including raw materials and labor, than conventional trading products. The OPG has been promoting “one island, one health food” because each island has its unique medicinal plants and herbs. Of course, there has been keen competition in recent years among health food producers.

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SUSTAINABLE ISLAND TOURISM: THE CASE OF OKINAWA

1. The Roles of Tourism for Small Island Economies

From a global perspective, the growth of tourism has been particularly impressive for small Pacific islands such as Okinawa, Hawaii, Guam and the Commonwealth of the Northern Mariana Islands (CNMI). Within these island economies, external receipts from tourism accounted for about 20% in Okinawa, 60% in Hawaii and CNMI of their respective total current external receipts for recent years. For CNMI, about 70% of the island's economic activities depend on tourism. These small islands have transformed rapidly into tourism dependent economies because: (1) they generally lack any natural resources exploitable for export earnings; (2) their market sizes are too small to develop viable manufacturing industry; (3) tourism-related industries are usually small-scale and laborintensive; (4) they are endowed with marine resources, particularly beautiful beaches; (5) these islands are either part of, or surrounded by, rich countries such as the United States, Japan and Australia which have well-organized transportation networks; (6) their tropical or semi-tropical climatic and cultural conditions are complementary with those of rich countries; and (7) these island communities have maintained internal political stability and warm hospitality to visitors (Kakazu, 2011).

(1) Tourism as an engine of growth Tourists' expenditures are recorded as service receipts in the external balance of payment statistics. Tourism incomes, in effect, are equivalent to exports of not only services but also goods which are sold to non-resident tourists. Conceptually, the only difference between income from export trade and tourism incomes are where the goods and services are traded and consumed. Tourists’ receipts imply precisely the same effect as exports of goods and services. Factors to determine the comparative advantage of the tourism industry differs greatly from that of the goods producing industries such as agriculture and manufacturing. According to the modern trade theory, comparative advantages in goods industries are determined by relative costs or productivity of trading partners. Comparative advantage in ‘tourism products’, however, is determined by both economic and non-economic factors such as geographical location, culture, history and even by ‘hospitality spirits’ which are difficult to capture in rational economic terms.

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The tourism industry also faces more or less the same kind of competition, and displays similar characteristics to the goods producing industry. The CNMI (Saipan), Guam, and Okinawa, in particular, have been competing with each other in the growing Japanese tourism market. In the past, Okinawa suffered cost disadvantages in comparison with these tourist destinations because of the rapid appreciation of the yen. The CNMI also has a labor cost advantage over Okinawa because it has been able to import cheap labor, primarily from the Philippines (Kakazu, 1994).

(2) Tourism as a composite industry Tourists' expenditures are quite different from other external service receipts such as sales of transportation, insurance, intellectual property rights and labor. Apart from lodging, a large portion of tourists' expenditures is in the form of local consumption and purchases of local or imported products and services such as souvenirs, meals, transportation and various entertainments. Therefore, sales to tourists are directly reflected in local production or imports of goods including agriculture and manufacturing. For small island economies in particular, tourism needs to be conceptualized as a composite industry, not merely a service industry. Such a re-conceptualization of the tourism industry in small island economies will provide a development framework to diversify and revitalize diminishing local agriculture and manufacturing as well as conserving tourism resources including marine and historical and cultural assets (Kakazu, 2011). In Okinawa, for example, aside from conventional tourism industry such as hotel, travel agents, transportation, souvenirs and travel guides, the industry is deeply and extensively related to local cultures, meals, production sectors, information and communication technology (ICT), various entertainments and sports, transportation, marketing and promotional activities, conventions and preservation of natural and cultural assets. (3) Tourism as a “cultural catalyst” and friction An important difference between commodity exports and service exports through tourism activities is that the former are consumed or stocked in the imported region, while the latter are inseparable from the exporting region where the services are rendered. In this sense, tourism is considered to be a package of economic as well as non-economic factors. In any country, tourists are mostly welcomed not only because of the income and employment they generate, but also because they are regarded as “cultural catalysts.”

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(4) Tourism as a peace industry Tourism is well-recognized as a peace industry. No country or region has ever adopted a policy to reject genuine tourists unless they are hostile or detrimental to host countries. As we have witnessed in recent years, tourists are most sensitive to their own security. Recent terrorist attacks on NYC (September 11, 2001) and Bali (October 2002), the outbreak of SARS, avian flu and tsunami disaster all scared off potential visitors in America and the Asia-Pacific. 6. State of Okinawa’s Tourism Industry

There is no doubt that the visitor industry is Okinawa's most competitive and therefore prospective industry on both domestic and international scales. As we have already noted, the number of tourists has expanded about sixteen-fold since reversion mainly as a result of private sector initiatives. The industry generated a value-added income of 564 billion yen ($4.5 billion) or 11% of Okinawa's GPP and about less than 100,000 regular jobs for a wide-range of industries in 2015. If we include all the various tourism-related industries, the impact of tourism on Okinawa's economy would be 1.8 times greater than its direct income effect. It is natural and reasonable, therefore, that we project the future course of Okinawa's development as being based on tourism. Hawaii's tourist industry can be a good model for Okinawa for two reasons. First, Hawaii's location, resource endowments and population size are more or less comparable to Okinawa's. Second, Hawaii has a long history of tourism development. Okinawa's tourism industry needs to diversify vertically through strengthening intra-industry linkages, and horizontally through geographical linkages, including Okinawa's rural areas and cross-border areas such as the Ryukyu archipelagos, Taiwan, Hong Kong, Shanghai and South Korea. Deepening the structure of tourism is the most effective measure to address the recent declining trend of Okinawa's per capita tourists' consumption. An average tourist in Okinawa spent 70% less than that of a tourist in Hawaii in 2015, reflecting Okinawa’s shorter length of stay (9 days vs 4 days), depreciation of the yen and cheaper visitor services than Hawaii’s (FIG. 17). "Cheap, Near and Short" has been a recent catchphrase to attract mainland tourists to Okinawa. As a result, despite high hotel-room occupancy rates, per room revenue has actually declined substantially. Such excessive competition by means of price-cutting may eventually damage tourism in Okinawa. Although the Prefectural government optimistically projected that the per capita tourism spending would increase to ￥109, 000 in 2014, the actual figure was only ￥70, 000 or less than 36% of the target. It should be noted that a ￥10, 000 decrease in per

61

capita spending means a loss of 450,000 visitors in terms of total tourism income. This clearly suggests that the tourism industry, which consumes local resources, should not be a mere numbers game. Okinawa is facing the problem of how to upgrade its tourism industry.

FIG. 17. TOURISM DEVELOPMENT OF HAWAII & OKINAWA (A) Inbound Visitors, Okinawa & Hawaii, 1975-2015 10,000 visitors

1000

HAWAII

800 600 OKINAWA

400 200 0

(B) Per Capita Visitor Spending, 1975-2015 ¥/$

US$

2000

HAWAII

350

300

1500

250 200

1000

OKINAWA

150 100

500

¥/$

0

50 0

1975 1980 1990 1995 2000 2005 2007 2008 2009 2010 2011 2012 2013 2014 2015 Note: 2015 figures are preliminary. Sources: Hawaii's Department of Business, Economic Development & Tourism Okinawa Statistical Yearbook , various issues

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Although Okinawa's future development path may follow that of Hawaii, driven by the visitor industry, there will be differences between them. Hawaii, for instance, lacks a meaningful agriculture and traditional craft industry, whereas Okinawa, despite a relative decline, still keeps a sizable share of these traditional products. As is the case in Hawaii, Okinawa's visitor industry needs to expand beyond national borders, while at the same time integrating its rural areas. Like France and the United Kingdom, Okinawa has tremendous cultural and tourism resources, ideal for promoting 'culture or eco-or green tourism' which has been gaining greater popularity in recent years. The transition from mass-tourism to the family or individual-based tourism would be accelerated particularly within Japan because of a rapid change of lifestyles triggered by an aging population, low birth rate, slowed economic growth rate and increasing global environmental concerns. Despite the increasing trend of tourism income, the economy could capture only 40% of total tourists spending through the sale of domestic services and goods. The rest leaked out on imports. There are muli-faceted ways to fill the gap between tourists' spending and the economy's capacity to meet the rising demand. According to the latest tourists’ spending survey, the visitors spent more than 20% of their total spending on Okinawan health meals and about 40% of the respondents enjoyed the meals. Health tourism can be further promoted since Okinawa is well-known for its longevity and health foods. In fact, health food products have been growing so rapidly in Japan’s major markets to the point where an "Okinawa brand" could be established. Okinawa is located between a rich mainland and a fast-developing Asia, but its visitor industry has thus far been tailored for Japanese without much appeal to its Asian neighbors, particularly Taiwan, Hong Kong, South China and Southeast Asia. Foreign visitors from aforementioned region to Okinawa accounted only for less than 10% of the total tourists in recent years. As our Asian neighbors become richer, their lifestyles will also shift to include spending more money on vacations. For them, Okinawa would be an ideal spot. It can be reached within two hours from Hong Kong and just over one hour from both Taiwan and Shanghai. Okinawa would also be an ideal health resort, a place to relax and recuperate. For the purpose of promoting visitors from Taiwan, South Korea and Hong Kong, where cumbersome visa applications are required, the Japanese government has recently decided to implement "special Okinawa measures" to ease restrictions on immigration formalities, including group application for tourist visas, extension of the visa period from three to five years, abolition of all visa application fees, and allowing a 72-hour visa-free stays anywhere in Okinawa. Visitors from Taiwan, who make up 40% of the total foreign visitors, are treated very favorably under these new regulations.

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7. Sustainable Tourism Development and Carrying Capacity According to the World Tourism Organization (WTO), Sustainable Tourism Development (STD) meets the needs of present tourists and host regions while protecting and enhancing opportunity for the future. It is envisaged as leading to management of all resources in such a way that economic, social, and aesthetic needs can be fulfilled while maintaining cultural integrity, essential ecological processes, biological diversity, and life support systems. We must also add that STD should meet the needs and wants of the local host community in terms of improved living standards and quality of life (QOL). The concept should also satisfy the demands of tourists and the tourism industry, and continue to attract them in order to meet the first aim; and, safeguard the environmental resource base for tourism. Therefore, “sustainable tourism in its purest sense is an industry which attempts to make a low impact on the environment and local culture, while helping to generate income, employment, and the conservation of local ecosystems. It is responsible tourism which is both ecologically and culturally sensitive” (Association for Tourism and Leisure Education, 2007). Carrying capacity of island tourism has been widely discussed in recent years (Kakazu, 2011). Social carrying capacity (SCC) of tourist sites can be defined as the socially determined maximum number of tourists which are tolerated by local communities. The SCC is usually analyzed both from the local residents and tourists’ standpoints. In this manuscript, we discuss two popular methods to evaluate carrying capacity and environmental disruptions to Okinawa’s sustainable tourism. One is the “Net Present Value (NPV)” approach. If the present economic “use value” of a particular tourism resource, i.e., water or coral reefs are $100 million, how should this resource be valued by the present generation if we have kept the same amount of resource without using it up to now? The valuation depends on two variables, the length of time and discount rate. The longer the time horizon and higher the discount rate, the lower will be the present value of the resource. The present value of a future (n=5-year) $100 million will be worth $90 if we discount the amount by 2% per annum. The present value will become only $37 in fifty years (n=50). If we discount the amount with 10% for fifty years, the present value will be almost zero. This will clearly suggest that the value of an environmental resource such as pristine, unspoiled coral reef will be worthless for poor fishermen presently if their living standards are not improved without utilizing it. The discount rate of a particular economic resource will be higher the lower the living standards. The other method is the contingent valuation method (CVM). The CVM method has been used widely in recent years to evaluate the economic value of tourism resources such as landscapes, coral reefs, flora and fauna and amenities which are not easily valued through market transactions. The

64

CVM method involves asking people directly about how much they would be willing to pay (WTP) for specific values of environmental services, or how much they would be willing to accept (WTA) in compensation for giving up specific environmental services. Therefore the method is contingent on a specific hypothetical scenario and questions asked. Of course, there are mainly limitations and assumptions we need to be aware before we apply the method. There is an interesting result of the CVM application on Okinawa’s coral reefs. Visitors to Kerama islands are willing to pay 10,762 yen per their visit. The study demonstrates that the value of environments will differ greatly by place, incomes, interviewees, age, sex and probably the way a survey is conducted. The CVM method needs a lot of refinements and improvements to be usefully applied to a particular project and situation. Based on the CVM analysis, one of the Kerama islands has been considering “a visitors tax” in order to support the basic resources to sustain its tourism. Although a severe water shortage has not occurred in recent years, water supply in terms of quantity and quality has been a serious issue for Okinawa and particularly for small outlying islands. Miyako Island has been a showcase for occasional water shortage and droughts because of its flat topographical conditions. The island has no river. Thus, groundwater has been a lifeline for about 50,000 islanders. Despite the construction of expensive underground dams, Miyako Island’s water balance has been deteriorating every year due largely to the influx of tourists (FIG. 18). It is highly questionable whether or not the current water supply capacity can meet the future demand.

FIG. 18. TOURIST ARRIVALS AND WATER BALANCE MIYAKO ISLANDS, 2000-2012

Wate r balance Tourist arrivals 1200 1000 To urist arrivals (persons)

800 600 400 200

Wate r balance (10 3 Ｍ ３ /ye ar)

0 2000

2002

2004

2006

2008

2010

2012

Source: Constructed from Water Resources Statistics of the Okinawa Prefecture Water Enterprise Bureasu.

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In addition to the increasing demand for water and energy resources as population and tourists increase, the economy’s carrying capacity and environmental disruptions will become serious impediments to future development. There is already sufficient evidence to suggest that Okinawa’s world-renowned coral reefs are on the verge of extinction due largely to global warming, overfishing and various construction activities. We need to assess whether or not Okinawa’s small, environmentally fragile islands can sustain their ever-increasing de facto population with their extremely limited capacity of renewable as well as non-renewable resources. Therefore, capacity as well as capability building towards sustainable island development is a crucial issue. Tourism destination’s the tolerance curve can also be expressed by the so-called “irritation index”, or “Doxey’s Irridex taken from its originator (Doxey, 1976). The concept can be depicted in FIG. 19.

FIG. 19. A CONCEPT OF IRRITATION INDEX

Response Stages （R）

*Onna Resort area Positive Euphoria

Feelings

Apathy

*Naha's Kokuai Street Level of Tourism Income (I 2) *Zamami Island? Level of Tourism Income (I 1)

Irritation Negative

Antagonism T1

T2 Number of Tourists (T)

Source: Kakakzu revised Reisinger's chart (2009). Original source: Doxey, G. (1976)

Euphoria Stage: Tourists are welcome by all means, and hosts are delighted and excited about visitors because they bring income, employment and various vigorous activities. At this stage, tourists are treated as “valuable guests,” and various positive or incentive measures are implemented.

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Okinawa’s west coast resort area, where population density is relatively low and demand for tourism development is high, will be a typical case of the euphoria stage.

Apathy Stage: When the number of visitors, particularly those repeaters, increases, they are taken for granted, and the hosts become indifferent towards tourists. The hosts will stop to take positive measures to attract more tourists. Kokusai Street in Naha may be reaching this stage.

Irritation Stage: When the number of tourism reaches beyond carrying capacity of the host region, locals get irritated, and sometimes they begin to feel antagonistic towards tourists. Zamami Island, a world-famous diving spot because of its well-known pristine beaches, clean, sparkling water and above all colorful tropical fishes and coral reefs, may be reaching this stage because the island has been suffering from an extreme shortage of drinking water having a surge of tourist scuba-divers in recent years. The island accommodated about 100,000 tourists which are nearly 100 times of the island’s total population. In addition to water shortage, the Zamami local government has been facing a financial crisis to deal with the increasing demand for public services including waste disposals and preserving public facilities. In contrast to Zamami Island, Taketomi Island, which belongs to the Yaeyama island group, has been considered as Japan’s model case of sustainable tourism. The island is only 5.42 square kilometers (2.09 sq mi) with a total population of 351 in 2014. Taketomi is part of Iriomote-Ishigaki National Park, which was established in 1972. Because of its easy access from Ishigaki Island, natural beauty, traditional lifestyle, the island became an extremely popular day-trip destination.

Antagonistic Stage: When tourists are blamed for all social vices such as crimes, price hikes, environmental disruptions and cultural invasions, hosts become hostile towards visitors. Although tourists bring income and create employment, hosts will take “affirmative actions” to offset the negative impacts of further tourism development. I would like to know any tourist site where this stage is applicable.

8. A Casino Controversy There are many small islands which host legalized gambling or land-based casinos. Okinawa’s former Governor also proposed to introduce the casino business. The proposal caused a wave of

67

controversy among islanders. The governor’s intention was to increase tax revenues, per capita tourist consumption and numbers of foreign tourists. Those opposed to the casino typically argue that legalized gaming, or casinos are associated with negative impacts such as higher incidence of crime, pathological gambling, and other social problems that are difficult to quantify. Even where quantifiable positive economic and fiscal impact data are presented, they may not fully convince the local people to introduce casinos. Hawaii once studied the economic impacts of shipboard gaming and pari-mutuel horse racing when its tourism industry stagnated in the early 1990s. The study concluded that net economic and fiscal impacts on Hawaii’s economy were uncertain, mainly because of substitution effects of tourists’ spending. That is to say these forms of gambling will not attract new dollars, but simply cause a shift in spending patterns would ultimately hurt existing domestic businesses. After careful study, Hawaii decided not to introduce casinos. Hawaii and Utah are the only U.S. states which do not host casinos. In addition to social costs and substitution effects, we need to question whether or not casino tourism is compatible with Okinawa’s clean and healthy island image. We also need to examine whether or not Okinawa can compete with well-established casino destinations such as Macao and Las Vegas. According to the latest survey by the Okinawa Prefectural Government on casino entertainment, 67% of visitors answered that casinos do not suit Okinawa’s image. In contrast to Okinawa, where casino business is prohibited under the Japanese national law, the Taiwan’s ruling Kuomintang (KMT) government legalized casino gambling in 2009 through amending the Offshore Islands Development Act. Taiwan’s casino scheme is similar to Singapore’s integrated resort (IR) model which includes hotels, convention centers, sports facilities, and other entertainment tourist attractions. But the casino gambling law is applicable only on Taiwan’s outlying island chains of Kinmen, Matsu and Penghu with a condition that the island populations have to approve such activity via local referendum (Kakazu, 2015).

OKINAWA’S ISLAND GREEN TECHNOLOGIES

1. What is Island Green Technology?

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According to the Oxford Dictionary of English, green technology is defined as “technology whose use is intended to mitigate or reverse the effects of human activity on the environment.” Green technology is also called ‘sustainable technology’, ‘alternative technology’, ‘clean technology’, and ‘zero-emission technology.’ The concept of green technology has rapidly spread after the concept of ‘sustainable development’ which was defined in the Brundtland Report (1987) as follows: “A process of change in which the exploitation of resources, the direction of investment, the orientation of technological development, and institutional change are all in harmony and enhance both current and future potential to meet human needs and aspiration.” Green technology aims to find ways to create new technologies in such a way that they do not damage or deplete the planets natural resources. It also has to be environmentally friendly to all living creatures as well as the planet. Green technology includes both production, or process technologies and the use or management of such technologies. Island’s green technology and innovation need to be differentiated from large-scale technology. Technologies and innovations appropriate to small, isolated islands should meet the following five principles for their sustainable development:

(1) They should be small scale as to make full use of island resources. (2) They should be effective to ‘displace or replace imports,’ namely substituting island products for what they are now importing such as vegetables, egg, rice, canned fish, soft drinks and various products which can be produced by modifying island traditional technologies. (3) They should meet the island’s ‘safe-minimum self-sufficiency’ rate for food security. (4) Such a rate might be derived from a minimum caloric requirement for survival of the population on the island. (5) They should be ‘green technologies’ as defined above. In order to meet the above principles, island’s production and consumption system must be transformed from a current trade specialization system, or import dependency regime or to a system of island production and consumption, as is illustrated in FIG. 20. Under the current production and consumption systems, islands tend to specialize in a few products or services such as tourism, remittances and offshore business to finance an increasing demand for imports. The new system is to meet basic human needs through production and consumption using full use of island resources. Of course, each island has to develop export products or services to import capital or consumer durable

69

goods such as heavy machinery, automobiles and electric appliances which cannot be produced in the island. This island model is being experimented in Okinawa’s Kumejima Island.

FIG. 20. TRANSFORMATION OF ISLAND'S PRODUCTION & CONSUMPTION SYSTEM Trade Specialization System Agroindustry Sugarcane Coconut products Tourism Island products

Island Production & Consumption System Agroindustry 　Sugarcane 　Coconut prodcuts Tourism Island products Daily necessities Medical services

　　　　　　　Trade

Consumer durable goods

　 　　　　　T 　　　　　R 　　　　　A 　　　　　D 　　　　　E

Work Collaboration

Island products

　　Necessities Island production & island consumption Consumer durable goods

Social services

Tourism Agroproducts

Daily necessities Trade balance 　　　　Trade deficits

　　　Financial transfers

Source: H. Kakazu (2014)

Okinawa has developed various subtropical and island-based niche technologies and innovations which support the 21st Century Vision Plan. Some important ones are listed below. Technologies such as fruit fly eradication, underground dams, deep-sea water utilization, recycling, renewable energies, fishing and environmental conservation are particularly noteworthy. Some important technologies are highlighted:

2. The Melon Fly Eradication Technology The melon fly had been a major pest species that damaged Okinawa’s major agricultural products such as bitter melon, tomato, beans, cucumber, watermelon, squash, green pepper and mango (FIG. 21). The melon fly eradication project in Okinawa by the sterile insect technique (SIT) method was successfully completed on Kume Island in 1978, followed by the Miyako Islands in 1987, the

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Okinawa Islands in 1990, and the Yayeyama Islands in 1993. The total project costs during the eradication period amounted to ¥17billion ($70m), utilizing 320,000 man-hours. The SIT eradication method was not only the best strategy in Okinawa, where islands are relatively small and isolated, but also the method maximizes the project benefits in the long run, say after eight years, despite the high initial costs (FIG. 22). After the complete eradication of melon fly, Okinawa became the “Fly Free Zone,” and Okinawa could export fresh agricultural products such as bitter melon, mango, cucumber and other agricultural products to mainland Japan.

FIG. 21. LIFE CIRCLE OF THE MELON FLY

Source: Okinawa Prefectural Government (1999)

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FIG. 22. NET BENEFITS (NB) OF THE MELON FLY ERADICATION PROJECT IN OKINAWA, 1980-2000

3. Deep-Sea Water Technology

Oceanic deep water is one of the advantageous resources for island regions. Deep-sea water is defined as water taken from a minimum of 200 meters below the surface of the ocean, to which a negligible amount of light penetrates. It is characterized in its low-temperature stability, inorganic nutrient richness and purity. The largest deep-sea water facility in Japan located in Okinawa’s Kumejima Island. Deep-sea water has been utilized for gradient power generation (OTEC), highvalued marine products such as sea vegetable, giant clam, puffer (fugu), abalone, sea-grape and pearl, processing new health foods such as mineral water, natural salt, soy sauce, ice, cosmetics, and medicine for water therapy including treatment of skin ailments (FIG. 23). On Kumejima Island, socalled Thalassotherapie (water therapy; Thalasso means water in Greek) has been promoted with a view towards enhancing tourism and Okinawa's healthy image.

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Figure 10 Kumejima’s Deep OceanWATER Water Applications FIG. 23. KUMEJIMA’S DEEP OCEAN APPLICATIONS

Source: Kumejima Town (2013)

4. Biomass Technology

Production of diesel oil from used cooking oil is also a useful technology not only for island regions but also for other island countries. A plant of so-called Eco-Diesel Fuel (EDF) is constructed with relatively inexpensive cost. The price of the smallest EDF plant is around US$ 130,000 according Mr. Nakamura, President of Eco-Energy Institute. Mr. Keijio Bien, Public Works Minister of the Republic of the Marshall Islands, visited the Eco-Energy Institute in 2009 to introduce this technology to his country where their abundant coconut resources can easily be converted into EDF.

5. Bottles Recycling Technology

Waste bottle recycling technology was developed by an Okinawan private company. Waste disposal

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is a pressing issue for many Pacific islands. Reduce, recycle and reuse (3R) are the key words to address this problem. Waste glass is not just waste, but a new island resource if we use it. Recycled product called “Supersol” is an artificial light, porous foamed material made by crushing, milling, baking and foaming waste glass. Supersol has been used for construction materials, purification of water, greening and others. The waste-glass recycling plant developed on the Island of Okinawa has been sold in overseas markets.

6. Ethanol Production from Sugarcane: Solutions to Energy Issues?

The development of high value-added agro-products based on local resources is one of the positive directions for island’s sustainable efforts. Okinawa’s development of various health foods, medicinal products and kariyushi-wear, or “cool business-wear” is additional examples. As discussed, Miyako Island, which is a major producer of sugarcane, has been designated by the national government to produce ethanol for fuel. Islanders are hoping to substitute this renewable and environmentally friendly fuel for gasoline in the future.

7. Underground Dam System

Miyako Island has been a showcase for occasional water shortage and droughts because of its flat topographical conditions. The island has no river. Thus, groundwater has been a lifeline for nearly 50,000 islanders. The islanders, however, discovered that they could store rainfall water underground by constructing subsurface or underground dams. An underground dam is defined as “an artificial structure constructed in geologic strata containing groundwater flow that is blocked and stored for use.” The first underground dam was completed in 1979 with 0.7 million ㎥ storage capacity for irrigation (mainly sugarcane fields). The second and third dams were completed in the 1990s to the total storage capacity of 20 million ㎥ which are enough to irrigate entire sugarcane fields. Miyako Island is formed by the porous Ryukyu limestone, which has high permeability rates. Rainfall percolates rapidly into the ground and is stored as groundwater in between limestone strata and siltstone strata (bed rock). Although, generally speaking, these technologies developed in Okinawa, are useful for island regions, they need to be modified to be appropriate for each island region from the standpoints of island environments and operational costs.

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8. Renewable or Green Energy Development

Unlike the Hawaiian power supply, the Okinawa Electric Power Corporation (OEPC) supplies all electricity needs on the islands. Renewable energy sources such as windpower and solar account for less than 2% of the total energy sources compared to Hawaii’s 18%, due mainly to high production costs, unstable supply, and site constraints. Unlike Hawaii, where electricity user rates differ by island, reflecting the cost of power generation, the OEPC has applied common rates for all islands. Okinawa’s electricity rates, applied to household users, are about 15% higher than mainland Japan’s. In addition to costly electrical power generation and distribution to remote islands, Okinawa is too small to build a nuclear plant. This may be a blessing considering a hard fact of the nuclear energy crisis triggered by the 3.11 earthquake cum tsunami disaster. Taking a grave lesson from Fukushima’s nuclear energy crisis, the Ministry of Economy, Trade and Industry (METI) implemented ambitious promotion measures for introducing alternative or renewable energy in July 2012. The ratio of renewable energy to primary energy supply will be increased to 20% from the current 6%. The most important and ambitious element of the new energy is the introduction of a feed-in tariff (FIT). The FIT scheme will be the most effective policy to promote renewable energy use as is experimented in many countries. FIT typically include three key provisions, namely (1) guaranteed grid access, (2) long-term contracts for the electricity produced and (3) purchase prices based on the cost of generation. Under a feed-in tariff, eligible renewable electricity generators (which can include homeowners, business owners, farmers, as well as private investors) are paid a cost-based price for the renewable electricity they produce. This enables a diversity of technologies (solar, wind, geothermal, hydro, biogas, wave, etc.) to be developed, providing investors a reasonable return on their investments. Although solar energy is 4-5 times more costly than current oil and coal energy sources, the costs have been rapidly reduced through continuous innovations and scale-merits. The introduction of new incentive systems such as FIT, subsidies, and smart grid will accelerate the use of renewable energy. Based on The Okinawa Enetopia Island Project, the OEPC has been experimenting a “micro smart grid” system in Miyako Island with a population of 50,000. Mega-solar (4000KW or 4MW) and windpower energy will be stored in 500KW Sodium Sulfur (NaS) Battery through the Microgrid Energy Management System.

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Microgrid Energy Management System in Miyako Island (provided by OEPC)

Okinawa 21st Century Vision Plan From Japan’s Periphery to a Front-Runner

1. Leading Industries and Strategies

The Okinawa Prefectural Government (OPG) has just implemented its own next ten-year development plan (2012-2021) based on the Okinawa 21st Vision which visualized Okinawa’s longterm development picture in the year 2030. The plan is based on the following four development principles and aims: (1) The plan should ensure Okinawa’s nature, culture, and safety as well as promote industrial and human resource development and self-help efforts through collaboration. (2) The plan should solve pending issues such as unemployment, U.S. military bases, remote islands, transportation, education, childcare and rural depopulation. (3) The plan should aim at contributing to Japan’s sustainable development and international exchange. (4) The plan should particularly contribute to solve issues faced by small, remote islands in the Asia Pacific.

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These principles were also written in the past ten-year development plan. The major difference between the past plans and the new ten-year plan can be found in its strategy to implement the plan. The revised Special Measures Law granted the OPG to take initiative in drafting and implementing the plan. Another important departure is to change the GOJ’s fiscal disbursement system from a tied national treasury subsidy or disbursement to a lump sum untying system. The past Okinawa Special Measures Act was based on three incentive programs. The most important program was direct government investment in infrastructures such as roads, ports, dams and human resources development. The second incentive program was government subsidies to Prefectural and local governments which ranged from 70% to as high as 95% of project costs, which were about 20%-30% more favorable than the other mainland prefectures. The third was indirect incentive programs such as tax credits, subsidized interest rates, wages, preferential import quota and duties and reduced administrative procedures. For the initial year (2012) of new development plan, the OPG has succeeded to obtain the same amount of subsidies it used to receive from the GOJ under the old law with a substantial increase in lump sum fiscal disbursement. Okinawa’s economic ownership or self-sufficiency improved in the past, being supported mainly by the tourism-related industries. Fiscal transfers (mainly transfers from the central government) and U.S. military base incomes have been declining or have stagnated in recent years, and they are no longer expected to be growth engines in the future. One important condition for Okinawa’s selfreliant development is to replace fiscal transfers and incomes from U.S. bases by self-generating economic activities through strategically promoting globally competitive leading industries as is fully discussed in the following. Okinawa’s leading industries have been chosen by the author to make full use of Okinawa's available resources, including human as well as non-human, to compete internationally. These strategic industries can be competitive in the global market because it is designed to harness Okinawa's current and future comparative advantages (FIG. 24).

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FIG. 24. OKINAWA's 21ST CENTURY VISION PLAN LEADING INDUSTRIES AND STRATEGIES

MICE Medical Tourism

Tourism & Convention

E-commerce GIX J-Adviser

ICT & Finance

LCCs Asia Flower Market

Trade & Cargo

Bioenergy OIST Pharmaceutical Products

Agro & Bio

Eco-tourism Sports & Culture Resorts

Call Center Software BPO

Asia Cargo hub SFTZ Parts & Repare Center

Health foods Flowers Okinawa Specialties

DEVELOPMENT FINANCE + INFRASTRUCTURE + HUMAN RESOURCES DEVELOPMENT Notes: MICE = Meeting, Incentive, Convention & Event GIX = Global Internet Exchange J-Adviser = Tokyo Stock Exchange nominated investment adviser for listing to the TOKYO PRO Market BPO= Business Process Outsourcing LCCs = Low Cost Carriers

SFTZ = Special Free Trade Zone in the Okinawa International Logistics Industry Zone OIST = Okinawa Institute of Science and Technology Graduate University Source: H. Kakazu (2012)

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2. Information and Communication Industry (ICT)

The most important factor conspiring against small island economies from establishing any viable international business is the small size of its economy, which is based in part to its isolated location from major markets. Information and communication technology (ICT), however, has begun to free Okinawa from the "tyranny of distance," particularly from the high costs arising from its smallness and isolation. Frances Cairncross, a senior editor at The Economist concluded: “The death of distance as a determinant of the cost of communications will probably be the single most important force shaping society in the first half of the next century. It will alter, in ways that are only dimly imaginable, decisions about where people work and what kind of work they do, concepts of national borders and sovereignty, and patterns of international trade” (Cairncross, 2012).

In this sense, Okinawa, an island located in the center of the Asia-Pacific region, can be rediscovered not only as a strategic military keystone, but also as a keystone or a hub of ICT and training. Since Japan’s telecommunication giant, NTT, established its 104 telephone directory assistance call centers in 1998 in Naha and Nago with about 500 local employees, 364 ICT companies have been established with over 25,000 employees in 2014. These ICT companies absorbed one out of every six of Okinawa’s job seekers in the past decade. These call centers progressed not only in quantity, but also in quality, from NTT's so-called "white-belt" or low skill level call centers to high-level information and knowledge-intensive ICT companies such as customer services, software development, business process outsourcing (BPO), data center, financial services, distance learning and back office operations. To cite some examples, CSK, a subsidiary of Sega Enterprise, started selling products, NEC began offering customer services, and Nomura Securities established a call center to sell financial services. Okinawa has several advantages for information-intensive call centers such as a surplus, educated young labor force with lower wages than the mainland, a relatively stress-free working environment, and no record of major earthquakes which is an important condition for establishing back office operations in particular. The central government has a plan to establish a huge data center in Okinawa, mainly because it is a relatively earthquake-free area of Japan. Okinawa has also begun to explore for setting up a Global Internet eXchange (GIX) and recruiting user companies through the joint government-private sector initiative. Currently

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communications between Tokyo and Hong Kong, where a world-scale GIX is located, are connected via the United States. In Okinawa, however, there is a cable network connecting to Hong Kong via Taiwan as well as one connecting directly to Hong Kong. It found that communications using the network via Taiwan to Hong Kong were about five times faster than the traditional route via the United States. Although the time saved is on the order of hundredths of a second, it makes a big difference for the finance and securities industries where speed is of the essence. An impending issue to realize Okinawa as the Call Center Capital of Japan is how to secure trained manpower in multimedia businesses. According to the Okinawa Employment Promotion Organization, eligible employees are in short supply by about 1,000 manpower is in short supply even to meet the current manpower demand in this area, let alone any future demand. Another issue is whether or not these established call centers could sustain their operations without government subsidies of the connection fees.

3. Okinawa: A Cargo Hub in Asia There is an encouraging move to utilize Okinawa’s location in the Asia Pacific since All Nippon Airways (ANA) established its cargo base in the Asia-Pacific on Okinawa in 2009 (FIG. 25). Cargos collected through ANA's nationwide network are brought from Narita, Haneda, Kansai and other airports to Naha. Cargoes are sorted according to destinations and loaded onto cargo planes, which take off again in the middle of the night. The cargoes are destined for Hong Kong, Seoul, Shanghai, Dalian, Teijian, Taipei and Bangkok as well as other nearby Asian cities. Okinawa is located within 4 hours of flight time from Narita and Bangkok. In between East Asian major cities are located. Naha Airport moved to 24-hour operations in 2010 to accommodate ANA’s cargo operations.

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FIG. 25. ANA’S AIR CARGO BASE IN OKINAWA, 2012

Dalian

Beijin Tianjin

Seoul

Haneda Kansai

Narita

Shanghai

OKINAWA

Taipei Hanoi

Bangkok

Hong Kong

From Okinawa To: Narita: Haneda: Kansai: Seoul: Shanghai: Taipei: Hong Kong: Bangkok:

3:00h 2:40h 2:15h 2:15h 2:50h 1:25h 1:20h 4:10h

Source: Okinawa Prefecture (revised by Kakazu)

ANA’s current nine cargo planes arrive and depart between midnight and sunrise each day in order for cargoes to arrive at Asian destinations early in one business day. Okinawa’s huge advantages include its geographical superiority, flexible timetable to avoid congestion, and the shorter time required for cargo reshipment and customs clearing in this region. Delivery speed is also becoming more important for all industries. The internationalization of Haneda Airport in 2010 strengthened ANA’s Okinawa cargo hub business which aims at delivering air cargos within a day in the region. The cargo trade from Okinawa to the rest of Asia jumped from mere 900 tons in 2008 to 92,000 tons in 2014. Following Narita and Kansai, Naha Airport has become the third largest cargo handing air base in Japan. ANA will envision moving 420,000 tons of cargo annually through a Naha hub in the future. Yamato Holdings Co., Ltd, one of largest and global logistic companies in Japan, also

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intends to take advantage of the location of Okinawa, providing one-stop logistic business operations in the Asia-Pacific region through integrating its diverse logistics modes (land, air and marine). Low cost carriers (LCCs) are now becoming a buzz word in international airline businesses. The LCCs or no-frills carriers are airlines with a lower operating cost structure than their competitors. To make up for revenue lost in decreased ticket prices, the LCCs charge for extras like food, priority boarding, seat allocating, and baggage etc. All Nippon Airways (ANA) has launched LCC services between Naha-Narita and Naha-Kansai through its subsidiary airlines, namely Air Asia and Peach Aviation in October 2012. Japan Airlines (JA), in partnership with Jetstar Asia which is a subsidiary of Qantas, and Korean Jin Air also launched LCC services in late 2012. These LCC services will be expanded between Okinawa and Asian major airports in near future which reduce substantially Okinawa’s high transportation costs, thereby making Okinawa’s cargo hub more attractive and competitive in the Asia-Pacific.

4. Okinawa International Logistics Industry Zone (ILIZ) The 2012 revised Okinawa Development and Promotion Special Measures Law integrated the Naha Free Trade Zone located nearby Naha Airport and the Special Free Trade Zone (SFTZ) located in Okinawa City into the Okinawa International Logistics Industry Zone (ILIZ). The Special Free Trade Zone (SFTZ), now a part of the ILIZ, the first of this kind in Japan, was created in 1998 and strengthened its functions in 2012. The SFTZ can be utilized as (1) A center to process and assemble imported raw materials, semi-processed intermediate goods, and parts for domestic (mainly mainland Japan) and foreign exports, (2) an international trading center, including entrepot and stock point, (3) a testing and inspection ground for imported goods before those are delivered to consumers and (4) World fair site which can provide facilities for the exhibition of products and actual transactions. The SFTZ offers various incentives, including tax, special depreciation for machinery and equipment, long-term low interest financing, wage subsidy and low-cost leased factories and others. A corporate income tax of 40% will be deducted from taxable income for ten years for manufacturing, packaging and warehouse activities, provided the investor employs at least 20 local regular workers. This tax incentive is equivalent to 19.5% of corporate income tax for five years after establishment. This effective tax rate will be favorable compared to current tax rate of 28.4% for non-SFTZ investors. Currently, 22 companies, mainly trade-assembly type manufacturing such as IC chips, golf clubs, shirts, cosmetics, acrylic panels and machine parts are operating at the SFTZ’s 122 hectare site. The total shipments

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from the SFTZ amounted to ¥6 billion in 2011, an increase of 14-fold from a decade ago. Mainland Japan accounted for 43% of shipments followed by Okinawa (20%) and overseas markets (35%). The SFTZ has been under-utilized for various reasons. As is proposed later, the SFTZ could be best utilized for parts procurements, trade, logistics and global flower market and training centers in the Asia-Pacific instead of a site of low-skill assemblers and storehouses.

5. Possible Entries into the Special Free Trade Zone (SFTZ)

(1) Parts operation center (POC) A possible entry is a parts operation center (POC). The SFTZ may be an ideal site for storing, controlling, assembling and shipping a huge number of parts which are increasingly out-sourced within the Asia-Pacific region, particularly in the ASEAN countries through the ASEAN Industrial Cooperation Scheme (AICO). The system started in 2004 replacing the Brand-to Brand Complementation (BBC) Schemes which were initiated by Japanese automakers such as Toyota, Nissan and Mitsubishi. A major operational problem is how quality-controlled parts can be delivered at the right time and at the right place. Toyota, for example, invented “just-in-time” system for its parts procurement operations. The Okinawa SFTZ can be utilized for a global a justin-time system. The system is worthy of further in-depth investigation. The similar scheme can also be applied to airplane inspections and repair operations in the Asia-Pacific region. The rapidly increasing demand for air transport in the region will soon justify such an aircraft repair and maintenance center.

(2) Taiwan-Okinawa-Shanghai Growth Triangle (TOS-GT) If we turn our eyes to Okinawa's Asian neighbors, a new type of regional cooperation and integration called "subregional economic zones" (SEZs) or "growth triangles" (GTs) have rapidly emerged, particularly after the end of the Cold War which opened the borders between contiguous areas for trade and investment. SEZs, which can be defined as "a transnational economic zone, spread over well-defined geographically proximate areas usually covering three or more countries," have drawn attention, particularly because of their market-driven, peripheral-oriented and private sectorled regional cooperation. SEZs are also called "natural economic zones" because they are formed in such a way as they interpenetrate and spread naturally to adjoining areas with complementary relationships. This form of flexible integration is different from the "hard" economic integration

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based on rules worked out through prolonged negotiations, as was the case with the European Union (EU) and the North American Free Trade Agreement (NAFTA). It may be characterized as "Asiatic," for it represents a slow, natural process that involves consensus and diversity (Kakazu, 2012; 2015). Okinawa's SFTZ will be most effectively utilized through multi-regional free trade zones such as the Taiwan-Okinawa-Shanghai Free Trade Zone (TOS-FTZ) or TOS Growth Triangle (TOS-GT) which comprises Taiwan, Okinawa and Shanghai (FIG. 26). The major purpose of TOS-GT are (a) to create trade and investment opportunities through a subregional free trade zone (FTZ); (b) to enhance regional economic activities through decentralization of the decision making process; and (c) to reduce politico-economic tensions, which have been building up in recent years over the territorial disputes on the Senkaku or Diaoyu Islands in the East China Sea and the Spratly Islands in the South China Sea. The best way to ease territorial disputes will be to create a common economic zone based on mutual understanding and economic interests. The TOS-GT has been recently endorsed by Taiwan’s Ma administration, which announced its intention to create a Free Trade Model. “If anything, the Free Trade Model Zone is a pilot program for gradual trade and economic liberalization. Consider it preparatory work for the TPP (TransPacific Partnership Agreement). Its ultimate goal is to establish Taiwan as a Free Trade Island.” Okinawa is much closer to Taiwan (630km or 394 miles) and Shanghai (820km or 512 Miles) than to Kyushu (1,000km or 625 miles), and to Tokyo (1,600 km or 1,000miles) on which the Okinawan economy heavily depends. If geographical proximity were a key factor for a successful regional economic integration—since it implies lower transaction costs such as travel, transportation, and communication—then it would be natural for Okinawa to have much closer economic ties with Taiwan and Shanghai than Tokyo. The reality, however, is the other way around. A very strange practice has been pursued for many years whereby Taiwan products are first shipped to Yokohama or Kobe and then to Okinawa. This practice has been rationalized on the basis that there has been only one tanker trip per week between Okinawa and Taiwan, mainly because of the lack of cargo to and from Okinawa as we have discussed. If economic activities expand through TOS-GT, more frequent trips among the participating regions will become economically feasible.

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FIG. 26 : A CONCEPT OF TAIWAN-OKINAWA-SHAGHAI GROWTH TRIANGLE BUSAN FUKUOKA JEJU-DO KYUSHU-DO

SHANGHAI CHINA

AMAMI

OKINAWA IS.

SENKAKU/ ISLANDS

PACIFIC ISLANDS HAWAII MICRONESIA

MIYAKO YAEYAMA

TAIPEI

YONAGUNI HUALIEN

TAIWAN TROPIC OF CANCER

HONG KONG 西沙諸島 ( Parac e ls I. ) 南沙諸島

(Spratly I.)

Source: H. Kakazu (2015)

Although Okinawa is having a golden opportunity in the age of locally- based global economy taking advantage of its strategic location in the Asia-Pacific region as well as its historical legacy in promoting TOS-GT, there are obviously many hurdles and problems to be overcome to realize the scheme. The thorniest issue would be politico-security relationships, including the hot territorial dispute in the region. Despite enhanced local autonomy in recent legislation, Okinawa is not in a position to negotiate with Taiwan and Shanghai in concluding trade related agreements, which are mandates of the Tokyo government. The Japanese government is also not accommodative for the local initiatives in advancing on Taiwan, where the Beijing government regards a "renegade province."

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The success of TOS-GT depends on complementary relationships among the participating regions. Particularly how Okinawa plays the economic role in the region is crucial. Okinawa's strategic location in the region alone does not guarantee prosperous business opportunities for TOS-GT participants. As we have spelled out, Okinawa is identifying itself as region's "healthy resort" with accompanying regional "hubs" of information and communication network and entrepot. It is clear from our analysis that Okinawa is not suited for intra-industry division of labor for large manufacturing because of its limited domestic and isolated market. In order to rationalize the TOS-GT scheme, actual flows of trade and investment, particularly between Taiwan and Okinawa must be further strengthened. Okinawa's trade with Taiwan accounts for only 0.1% of Taiwan's total trade. There are, however, encouraging signs that Taiwan businessmen have shown keen interest in investing in Okinawa. Reflecting such a positive move, Taiwanese tourists, especially on cruise ships have been on the rise in recent years.

(3) Okinawa International Floral Market (Okinawa-Flora) The ANA Strategic Research Institute proposed to create an International Floral Market in Okinawa (Okinawa-Flora) in 2008. The proposal intends to activate ANA’s cargo operations in Okinawa as well as to promote Okinawa’s agro-industry, which will be discussed in the following section. According to the ANA report, the floral industry is a dynamic global industry, growing 6% 7% annually in the Asia Pacific. The Netherlands’s Aalsmeer has been the oldest and largest international floral market in the world as well as a major grower. Dubai is aiming at creating the second largest international flower market in the world by making use of its free trade zone within its international airports. Dubai’s targeted markets are Middle East and Africa for cut flowers. The Okinawa-Flora, if it is realized, will be the first international floral market in the Asia-Pacific, where demand for flowers has been rising rapidly in commensurate with rising incomes. The Okinawa-Flora will promote not only Okinawa’s cargo trade, but it will also promote flower production and various flower products and services. Okinawa is already exporting chrysanthemums to China through ANA’s logistic center. If Okinawa can add two or three other flowers with international comparative advantages, the flower business will become Okinawa’s another leading industry in the future. In order to realize the Okinawa-Flora, the space of the current Naha airport must be expanded, including Naha Military Port area and the hinterland now used by the SelfDefense Forces. (4) Foods processing

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Food processing can be profitably conducted in the Okinawa SFTZ by striking the huge tariff differentials between imported raw materials and processed products. Duty for fresh beef, for example, will be 38.5%, while "processed" "Gyudon" (a bowl of rice topped with sliced beef) will be taxed only 25% at the border. The difference is 13.5%. An investor in the Okinawa SFTZ, therefore, has a definite cost advantage over a mainland competitor who has to pay a 44.3% tariff before selling Gyudon made with imported beef in the domestic market. Transportation and other additional costs between the Okinawa SFTZ and mainland markets, however, must be carefully accounted for. The location of Okinawa provides comparative advantages in both stockpoint and entrepot operations. Although they are outside of free trade zone, oil terminal facilities have been in operations in the central part of Okinawa since the oil shocks hit in the early 1970s. An international food-storage facility can also be viably established in the SFTZ. The facility will be useful as an emergency buffer stock for a potential future food crisis in the Asia-Pacific region.

6. U.S. Base Conversion The conversion of U.S. military bases will be the single most important issue for Okinawa’s future development plans considering the magnitude of the land use and the socioeconomic impact on local economies. Major bases, except Kadena Air Base, are scheduled to be returned to landowners by 2020 if the relocation of Futenma Air Station is completed by that time. The Makiminato U.S. base was returned to landowners in 1987. The area was renamed as Naha Shintoshin (Naha New Urban Complex) and various construction projects started in 1997. Now Naha Shintoshin has become the most bustling commercial center in Okinawa. The conversion of the former U.S. military housing into the commercial use generated more than ten times higher use value than the military use in terms of incomes, production and tax revenues (TABLE 1). This Shintoshin area now accommodates more than 20,000 residents and the land prices in the area tripled over the past decade.

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TABLE 1. IMPACTS OF U.S. MILTIARY BASE CONVERSION OF NAHA NEW URBAN COMPLEX, 2002 (￥100 million)

Direct income Induced production Induced income Tax revenue

Military Use (A) Private Use (B) 51 608 55 660 17 182 6 97

B/A 11.9 12.0 10.7 16.2

Notes: Figures do not include the impact of initial basic infrastructure investments "Direct impact" measures the direct purchase of goods and services by the military authorities or private firms from the private sector, in terms of the land rental payments, employment and revenues. "Induced production" measures the purchases of goods and services resulting from the direct purchases of goods and services. "Induced income" measures incomes such as wages, rents and profits generated from the induced production. Source: Okinawa Prefectural Government

7. Global Human Resources Development and Development Constraints

An Asia-Pacific Training Center for ICT professionals has been proposed by the OPG. Okinawa possesses several advantages in promoting such a multimedia training center, including: a strategic location between Japan and the rest of Asia; a favorable climate and high living standards; the lower costs of doing business within Japan proper; endowed with relatively young and well-educated population, and various incentives for promoting multi-media service industries, such as wage subsidies to companies employing additional workers, subsidies for Internet connection charges, and investment tax credit. Okinawa has already proven its relative advantages in training human resources. JICA’s Okinawa International Center, for example, has been used as a model for similar training centers established on the mainland. The center has been particularly successful in computer-related and Japanese language training for people from more than 50 countries. The demand for information-related training has been rising in the Asia-Pacific region. A manpower shortage in this growing field has been already apparent, and it could become a major bottleneck for further socioeconomic development in this region in the coming years.

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In addition to the high cost of transportation, inward-oriented economic structure and human resources development, supported by inward-oriented incentive policies, are major issues to be resolved for global competitiveness. Okinawa’s exports account for just over 10% of its GPP, compared to more than 150% for Hong Kong and Singapore in recent years. Additionally, more than 90% of Okinawa's exports are destined for mainland Japan. There are also possible supply constraints on public utilities such as water and electricity in terms of quantity of supply as well as costs. Although a severe water shortage has not occurred in recent years, the water supply is precariously dependent on rainwater. A tourist consumes three times more water than a local resident. Recent severe water shortages in the Zamami Islands, one of the most popular tourist destinations in Okinawa, indicate that the supply of quality water has been the most important lifeline for isolated, small islands. As the population and the number of tourists are expected to increase in the plan period, the economy’s carrying capacity and environmental disruptions will become serious constraints on future development. It is particularly serious for Okinawa, where tourism, which depends on clean, sandy beaches, is the most important engine of the economy. It is particularly important to assess whether or not Okinawa’s small, environmentally fragile islands can sustain their ever-increasing de facto population given their extremely limited capacity of renewable as well as non-renewable resources. Therefore, capacity as well as capability building towards sustainable island development is crucial for a success of the Okinawa 21st Century Vision Plan. There are also the political and administrative challenges to the success of the plan which must be fully discussed elsewhere. Okinawa has to have a deeper and wider autonomy in conducting its own socioeconomic development. The Region System (Doshu-Sei) may be an essential first step. The Region System has been intensively discussed at the Japanese Cabinet Office as well as within academia. Okinawa is a natural candidate for autonomous regional governments with special administrative status. The Region System must go beyond current special regulatory measures which allow local governments to set up various “special zones” under the guidance of the Cabinet Office. The Region System must guarantee a “One State, Two systems” granting each local government the ability to conduct its own economic diplomacy and internal affairs at its own risk and responsibility. Although Okinawa’s “independence advocates” have been weakening since reversion, the notion of Okinawan independence is deeply rooted in the mind of local peoples, and it has been hotly debated in recent years.

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CONCLUDING REMARKS: ENLIGHTENMENT OPTIMISM We have assessed Okinawa's economic performance, problems since reversion, and attempted to chart a possible future development path with strategies based on Okinawa's potential comparative advantages. What we have learnt from the four decades of economic performance is that, although Okinawa's standards of living, in terms of per capita income and the level of infrastructure, have improved remarkably, the economy's capacity and capabilities to transform from a dependency structure to self-reliance has not been achieved successfully. More specifically, better GPP growth performance than that of Japan proper since reversion has been brought about, largely, by the massive inflows of public expenditures which simultaneously pushed up factor prices such as labor and land costs without improving total factor productivity of labor and capital. Apparently there are “perverse incentives”: participants in the business activities stood to gain by doing things, including “politicize the U.S. bases” that helped obtain additional fiscal transfers and subsidies from the central and local governments. Since opportunity costs for Okinawa in obtaining these transfer incomes are nearly zero, such rent-seeking economic activities have inevitably bred a dependency syndrome against the aspirations of the Okinawan people. Our estimate indicates that Okinawa’s technological progress in the manufacturing sector was even negative in the past decades. This is precisely what Paul Krugman (1994) assessed on the Asian "miracle growth” as a "myth." He argued that East Asian growth had been based exclusively on the accumulation of capital per worker, rather than on the increase in the productivity with which it was used. Although Krugman's arguments are seemingly justified by the Asian financial crisis in the late 1990s, he wrongly specified countries such as Thailand, Singapore and Taiwan where the total factor productivity (TFP) actually improved remarkably. Unlike these Asian spearhead economies, however, there is no evidence at all that Okinawa's TFP has improved since reversion. We should note that, despite overall positive effects of public expenditures on Okinawa’s postreversion economic development, our calculations indicate that it has generated a sizable negative impact on the trade balance. Specifically, one unit of public investment has induced 0.046 units of exports of goods and services and 0.459 units of imports, and, therefore, 0.413 units of trade deficits (0.459 - 0.046). If we define self-reliant economic development as a process of reducing trade deficits and unemployment rare on a sustainable basis, we need to reexamine the structural linkages between public expenditure and balance of payments so that the planned public projects are designed to strengthen self-generating forces of development capabilities.

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Where should we go after Kurgman’s assessments? Bill Emmott's "Enlightenment optimism" means that all problems are solvable by reason. We would like to argue that the development path and strategies suggested in this paper might provide an answer to Okinawa's seemingly eternal question: how can we achieve economic self-reliance? We know from the experiences of small independent island nations, noticeably, the South Pacific, that political independence does not necessarily guarantee economic self-reliance. Our in-depth studies on island economies suggest that the attainment of political independence inevitably brought about the "revolution of rising expectations" to the island people. Greater political autonomy or the Region System must be recognized as one of the basic conditions towards ownership development. For the Pacific island economies, the deeper specialization in primary export goods, which were susceptible to the vagaries of price fluctuations in the international market, meant dependency on imports, which in turn generated new wants through the demonstration effect. The result was growing trade deficits that have largely been financed through official development assistance (ODA). Ten years after Fiji’s independence from the United Kingdom in 1970, Prime Minister Sir Kamisese Mara had to say that the country made an agonizing choice to "sell" its independence for additional ODA to sustain their bloated standards of living. Every conscientious planner now recognizes that this process of economic development is not only unsustainable in the long run, but also the process is inconsistent with the strategy of self-reliance. We need to learn from a Manx-Gaelic motto of the Isle of Man in the British Isles: "Wherever I'm thrown, I stand on my own feet." Although Okinawa is endowed with more politico-economic as well as locational advantages than most small island economies in the Asia-Pacific region, it has so far failed to utilize these valuable endowments in conducting a self-generating development process. The on-going trends of Japan, i.e., rapidly ageing population, globalization, decentralization (or greater regional autonomy through localization), rural depopulation, a knowledge-based and environmentally conscious society, economic dynamism in the neighboring Asian countries and emerging economic partnership in the Asia-Pacific region such as East Asian Free Trade Agreement (EAFTA), ASEAN Economic Community (AEC), East Asian Free Trade Agreement (EAFTA), Regional Comprehensive Economic Partnership (RCEP), Trans-Pacific Partnership Agreement (TPP) and East Asian Free Trade Area (EAFTA) will definitely shape the future course of Okinawa. Okinawa has a good chance to be Japan’s new frontier in the Age of Asia-Pacific. In the past, the terms globalization and localization have provoked strong positive and negative reactions in Japan as well as in Okinawa. Despite the new opportunities it brings, globalization is

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being feared because it exposes local workers, farmers, and small enterprises to global competition. Localization is usually praised for raising levels of participation in decision-making and for giving local people more of chance to shape the context of their own lives. We argue, however, that globalization and localization are not “trade-offs.” Instead, they are “complementary” factors for Okinawa’s future development path. Without full, efficient, value-added use of location factors such as labor, niche technologies, culture and natural resources, the local economy would not stand for a sea change brought out by globalization. In order to ride the cresting wave of such seemingly favorable trends for Okinawa compared to mainland Japan, we must once again define the roles of the public and private sectors, and strike an appropriate balance between private and public actions in conducting economic activities. The private business sector, which has been fragile and inward looking, must play a crucial role as the engine of sustainable development. There is no doubt that the urgency of integrating national as well as local economies into the international economy will be heightened in the coming decades. No region can afford to ignore an increasingly globally networked world. As the Internet deepens and transport costs fall as symbolized by LCCs amid the increasing trend of the yen, companies are increasingly reliant on international joint ventures, strategic relationships, and information-sharing partnerships. We have shown that “incentive pull” is more effective than “support push” in nourishing and activating entrepreneurship. That is to say creating favorable socioeconomic environments for inducing venture capitalists whose social status is much lower than public servants. As we have carefully identified, economic activities, in which Okinawa can fairly reap its comparative advantage in the coming age of globalization and the Internet, are in the areas of future-oriented new tourism, ICT, international logistics and trade, and agro-health-related industries. These activities are actually emerging visibly by the initiatives of the private sector under the institutional support of the local as well as central governments. Particularly, it should be noted that the "Internet age" does not bring equal opportunities and benefits to all regions and peoples. The so-called "digital divide," that is to say regional disparities in the use of personal computers and the Internet which in turn cause regional income gaps, could be more serious in Okinawa than mainland Japan considering Okinawa's characteristics of peripheries and remote, small island communities. Digital divide could be effectively addressed by introducing the wireless LAN and cloud computing. What is crucial in enhancing these locally-based, global activities is the availability of a highly flexible, skilled labor force. As we have noted, Okinawa has been experiencing a growing mismatch in the labor market arising from a rapid transformation of the economic structure and lagging human

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resource development. Despite the deteriorating trend in the unemployment rate, which is not only an indicator of unutilized labor force, but also an indicator of multiple deprivations such as social exclusion, loss of self-reliance, self-confidence and psychological and physical health, the emerging ICT and new tourism-related companies are having a difficult time finding qualified workers. Investments in human resources are not only the top priority for Okinawa’s industrial transformation towards higher value-added activities; but such investments also promote capabilities for young Okinawans to venture into the global business world. A drastic policy shift, from investments in “hard and tangible” infrastructures such as roads, bridges, ports, monumental buildings, etc., to investments in “soft” infrastructures such as human resource development, information networking and cultural development, is crucial and urgent in achieving the true ends of development, namely our choice and capabilities to lead the kind of lives we have reason to value. It should be clearly stated here that sustainable economic development and full employment are only means to achieve these goals.

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Comments by Mr. Kenji Sumida Former President of the East-West Center In reading the draft paper, I was struck by the many similarities between Okinawa and Hawaii, not only in geography and history, but also by the problems and opportunities that we share. Like Okinawa, one of the most serious problems we face in Hawaii is our stagnant economy. As you know, Hawaii has always existed on a very narrow economic base. Historically, we were dependent on three main sources of revenues–the military, sugar and pineapple. Like Okinawa, as our living standards improved, the high cost of labor (Hawaii has the highest agricultural wages in the world) could not continue to be offset by further gains in productivity through mechanization and technology. As a result, our sugar and pineapple plantations could not compete with lower cost production in the developing countries, and have gradually been phased out. Fortunately, the demise of our sugar and pineapple industries was accompanied by the tremendous expansion of our tourist industry that occurred during the late fifties through the eighties. Unfortunately, the Gulf wars, and later the economic problems in Japan drastically reduced the number of visitors, particularly from Japan, and Hawaii has still not recovered. In recent years, numerous studies have been conducted by governmental agencies, citizen task forces, educational institutions and NGO’s in an attempt to develop a plan for Hawaii’s economic development. Many excellent proposals and recommendations have come out of these studies that can help Hawaii take advantage of its unique location, culture, people and geography to develop new industries needed to revive its stagnant economy. As I have mentioned, I am struck by the similarities between Okinawa and Hawaii. Some of the unique opportunities that have been identified for Hawaii include (a) expansion of tourism, particularly eco-tourism; (b) health care (attraction of American quality health care in a multi-cultural environment that Asians will feel comfortable in); (c) information technology and biotechnology; (d) technical training for Asian markets; (e) special niche high value agricultural products (coffee, cacao beans, macadamia nuts, anthuriums, orchids) and (f) professional sports training facilities. These opportunities have been discussed by political, educational and business leaders for years, and nothing of real substance has developed, and our economy continues to lag behind the rest of the United States, although we have seen a slight improvement in the last six months. I mention this because I feel that the paper describes many good opportunities for Okinawa to transform itself from an external subsidized dependent economy to one that is a robust and vibrant

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and as good as, but also uniquely different, from any of the other prefectures in Japan. However, there are many obstacles to overcome, as we have learned in Hawaii. First, there must be the political will for Okinawa’s political leaders to create an environment that attracts and encourages private enterprise. The starting point to economic development in any society is private investment, and too many governmental regulations and taxes serve to discourage such investment. Second, private sector business leaders must step up and exert strong leadership to (a) help government official identify the impediments and disincentives to private investments and develop incentive programs instead (here Okinawa seems to be ahead of Hawaii in tax incentives and its SFTZ), and (b) create the vision for new businesses that take advantage of the opportunities outlined in your paper. Second, Okinawa’s educational system must be considerably strengthened, particularly at the University level. As the paper pointed out, a highly educated and trained workforce must be available if you are going to attract the kinds of industries that fit with the unique conditions in Okinawa. Another factor that must be considered is the role a good university plays in conducting the research and development needed by industry to keep up with accelerating technical changes as well as the rapid globalization of all economies, small and large. As you know, it is not a coincidence that the most successful high-technology industries have grown up in the U.S. around great universities in California, Texas, North Carolina, Massachusetts and other states. An excellent higher educational system also contributes to the development of an environment that promotes quality of life, which is another key to economic development. With modern transportation, communications and information technology, companies no longer have to situate their headquarters in a large city. More and more, what attract companies are lower cost areas that offer quality of life for their executives, employees and families. And this would include a good educational system for their children, and a good social/cultural environment. Finally, one cannot underestimate the importance of marketing. As the paper points out, Okinawa’s image needs to be improved. In a similar fashion, Hawaii still suffers from an image of a place where one goes to play in the sun and surf, and not a place for serious business. Marketing efforts are not only important to external parties that may be potential investors, traders and tourists, but just as important to upgrade Okinawa’s image of itself. For too long Okinawa has been treated by Japan as a poor, second rate prefecture, and this must have affected the self-esteem of its people, like it had in the past in Hawaii. So your marketing efforts must be aimed at convincing both internal as well as external parties about the unique strengths and assets of Okinawa and develop a brand image that says "quality" in all that you are and do.

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ABOUT THE AUTHOR Hiroshi KAKAZU, currently Vice President of the Institute of Asian Modernization (Tokyo), is one of originators of nissology (the study of islands in Greek). He has written several books, including an international award-winning book. His book on Sustainable Development of Small Island Economies (Westview Press, 1994) is a book to read on nissology. Kakazu studied at the University of the Ryukyus, the University of Nebraska and the London School of Economics, and worked as a researcher, executive officer and professor at the Asian Development Bank, East-West Center, the Okinawa Development Finance Corporation, the International University of Japan, Nagoya University and others. He organized the first conference of the International Small Islands Studies Association (ISISA) in Okinawa. He also served as Vice President of the University of the Ryukyus, Vice President of the International Scientific Council for Island Development (UNESCO-INSULA) and President of the Japan Society of Island Studies.

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