With his cutting-edge knowledge of quantum theory, Italian theoretical physicist and bestselling author Carlo Rovelli argues in his 2020 book “Helgoland” the importance of perceiving the world as an “interactive network of relationships,” not just as a random agglomeration of “matter.”

Borrowing from this imagery, one could say that economic activity also represents this sort of interactive network. For instance, an automobile is made up of around 30,000 parts and components, against a backdrop of a colossal system of division of labor and supply chain that impacts the jobs and lives of innumerable people in regional communities and, ultimately, the global environment as well.

IMPROVING ‘MARKET ACTIVITIES’

That said, people generally concern themselves only with the cost and quality of goods or services of immediate interest. Any further information is hard to come by, even if we try to delve further.

However, even with individual consumers and businesses making decisions in their own interests based on limited information, the outcome usually comes up trumps for society overall--or so it has long been thought, thanks to the presence of an “invisible hand” that is an asset of market capitalism.

On the other hand, the aggravation of social disparities and climate crisis in recent years has intensified moves to review the economic system now in place, the pendulum of which has swung too far in the direction of placing market principles and shareholders’ interests above everything else.

Corporate executives and politicians alike have started arguing on behalf of “stake holders” and calling for a “restructuring of capitalism.”

The global COVID-19 pandemic has also spurred this new way of thinking.

Noting that government expenditures are bloating among advanced nations, the administration in Japan headed by Prime Minister Fumio Kishida sees “flaws in the new-liberalism” that prevails and stresses “redistribution.”

This is welcome news, provided it leads to an efficient redistribution of wealth to benefit low-income people and improvements in health care and environmental policies. We hope the Kishida administration will live up to its commitment.

But the government is not omnipotent, and globalization has created an increasing number of issues that Japan cannot resolve on its own. Should the administration try to over-compensate in the wrong direction, it will defeat the whole purpose by damaging market efficiency and hampering technological renovation.

This being the case, it would seem germane to also improve the workings of the market itself. This calls for a new system that factors in market influences on society that were not considered in past market transactions. Such a system must be created with a broad view of the “network of relationships” in the background.

And this is happening, as we speak.

GOING UP THE SUPPLY CHAIN

Kao Corp., a maker of daily household items, installed a large solar power generation system at its Sakata plant in Yamagata Prefecture. The cost of this investment was determined by the company’s “in-house carbon pricing” calculations.

Carbon pricing determines the price a corporation must pay, commensurate with the amount of carbon dioxide it discharges, for burdening society with greenhouse gas emissions.

In Kao’s case, the monetary value of CO2 emission reduction achieved by using solar energy was said to be equivalent to 25 percent of the cost of investment.

Kao aims to further cut CO2 emissions through wider use of in-house carbon pricing methods in measuring its direct emissions and in the procurement of energy while more precisely grasping amounts of emissions from its supply chains, including procurement of raw materials and their transportation.

With regard to the relationship between “business and human rights,” the focus is on its impact on society through the supply chain.

The 2011 United Nations Guiding Principles on Business and Human Rights determined that respecting human rights is a corporate responsibility, and nations across the world are currently in the process of creating pertinent systems.

Their aim is to ensure that the U.N. International Covenants on Human Rights and core labor standards--prohibition of forced labor, elimination of discrimination in employment, against certain lines of work and protection of the right to form unions--are fully observed throughout the supply chain.

The U.N. guiding principles require enterprises to exercise human due diligence. In this regard, Japan’s largest business group, Keidanren (Japan Business Federation), compiled a manual last month.

“This is still a new concept in Japan, and it needs to be promoted steadily and patiently,” noted Tomoko Hasegawa, Keidanren’s managing director.

How far should due diligence be applied to the supply chain?

“Even in European and American corporations, many say it can’t go beyond direct business partners, although laws in other countries tend to try to apply it much further upstream,” said Hasegawa. “There is no one ‘right’ answer, and we just have to keep improvising while trying to get our priorities straight.”

QUESTIONING GOVERNMENT’S ROLE

Focusing on the supply chain adds to the weight and extent of corporate responsibility. This may seem like a heavy burden. But if it can result in a system where individual corporations are able to compete on level ground under set rules with a clear aim, this can motivate businesses and society to support one another and move forward together.

But for that to happen, a fair system and broad social consensus are indispensable. And that requires the government to also play an important role.

A perspective on the supply chain cannot be overstressed even in discussions about economic security.

To be sure, the entire chain needs to be kept in sight when trying to procure goods and technologies that directly affect the lives of people.

But the aims of economic security are abstract. Not only do different nations have different interests, they also are influenced by prevailing circumstances.

If economic security is managed behind closed doors, the economy itself could be jeopardized. This would inevitably happen should the government decide to groom a particular industry, causing the latter to bloat beyond capacity to its own detriment.

Any discussion of the supply chain must also take workers and subcontractor companies into consideration. The Kishida administration supports wage hikes and opposes driving hard bargains to force prices down, but can the prime minister guarantee results?

To ensure that policy-making and corporate management issues are not raised only for limited-time discussion, a system needs to be built to reflect the interests of people other than shareholders and corporate managers.

Kishida’s slogan of a “new form of capitalism” will quickly reach its expiration date unless he acts on it. He needs to indicate his specific direction this year.

--The Asahi Shimbun, Jan. 4