1.Introduction-Abenomics-

The so-called "Abenomics", or the Japanese economic policy under Abe Administration, has produced higher stock prices and weaker yen/dollar exchange rates, with its "three arrows" (after Japanese feudal legend) consisting of monetary easing, more aggressive fiscal policy, and economic growth strategies. Japanese share prices (the Nikkei average closing price) rose from JPY 8,661.05 as of November 15, 2012, which was the day before the Lower House of the Parliament had been dissolved, to JPY 11,662.52 as of February 25, while the JPY/USD exchange rate rose from 80 yen to 94 yen to the dollar. It is as if we are hearing the approach of thunderous footsteps of a recovery, finally leading the economy out of the deflationary recession.

In fact, the Emergency Economic Policies for Reviving the Japanese Economy, which was officially sanctioned by the second Abe Administration on January 11, aims to revitalize the economy strongly by inducing investments by the private sector. A simultaneous realization of two components, namely, globalization and the vitalization of regional economies, forms the necessary background for this. However, their coexistence is by no means guaranteed. In this article, we want to think of a financial system that can create income growths and more jobs, using the concept of cooperative society.

2. Why the financial system of a cooperative society?

If it is the kind of globalization that places the citizens and households as the main casts, the two aims, namely, globalization and the vitalization of regional economies, should not come into conflict with each other, but rather co-exist in harmony. The future expansion of the Japanese economy must come from not only domestic Japan, but also foreign markets, especially in East Asia, by way of globalization. And for that, building of a sound financial system as based on the community, which is where people live their daily lives, should be the prerequisite.

Otherwise, even if we are successful in developing viable intra-Asian cross-border bond markets, we will not have growth engines, in the absence of improved consumption on the part of citizens and households in each market, as well as better fund management opportunities.

The cooperative society is a society in which the citizens are the main casts, and solve its problems that are beyond the means of private individuals without excessive reliance on the public sector, while collaborating with various entities including NPOs, NGOs, civic groups, community businesses, regional financial institutions, and regional & central governments. The cooperative society can be found in the area where these two fields merge, and it consists as a combination of the mature community economy and an early stage of the market economy development. The households stand at its center, and operate in both communal and market economies.

As Obama Administration's renewed initiatives suggest, in which the US President tries to restrain financial services industry by curtailing excessive exposures to risks, while protecting the taxpayers' interests, we need to curtail excessive investment and speculative activities that rely too much on debt financing based on the market economy, while vitalizing the cooperative society in a meaningful way.

3. Community businesses provide potentials for growth paths with increasing returns

Economic production of the cooperative society is supported by various social businesses, including the archetypal venture businesses and medical, nursing, childcare, and educational services, as well as small businesses in manufacturing, service industries, and agriculture. These community businesses, which are very close to the local areas or regions, provide possibilities for the growth paths of increasing returns in which the productivity can improve exponentially. This is because the communal economy is more likely to bring about innovation, as the fixed costs tend to be lower, while the cost structure is more flexible.

This situation contrasts with the growth paths of a typical market economy, which follow the growth paths of diminishing returns. Generally, production shifts from communal economy to market economy as the scale expands, like the "structure of the cooperative society" which was mentioned in my book Kyojoshakai no kin-yu system - seikatsusha to toshika no shiten - (The financial system of a cooperative society: views of consumers and investors, (Bunshindo, 2013)).

Unlike the communal economy in which entities fill their financing needs mainly using their own equity capital or retained earnings, however, entities in the market economy start using debt financing. When they increase large-scale productions and/or speculative activities that are not in touch with the real economy by relying too much on debt finances, they will no longer enjoy the levels of returns that match their productions and/or investment and speculative activities, which means they will start following the growth paths of diminishing returns.

As a result, their economies will end up repeatedly experiencing the emergence and bursting of economic "bubbles", such as the collapse of the Japanese Bubble economy, the Asian currency crisis, Subprime loan problems, and the European sovereign debt crises. This means that we need to create a cooperative society consisting of both a communal economy with increasing returns and a small market economy with diminishing returns (but not too diminishing), as well as a financial system that provides financing opportunities for community businesses which bear the burden for the cooperative society, to which funds available for investment or speculative activities, which may have reached near the point of a "bubble", are redirected.

4. Financing for the community businesses

Among the community businesses, social businesses are mostly not-for-profit. However, social businesses have potentials to turn into for-profit businesses in the future as they grow, despite their nonprofit origins. On the other hand, for-profit businesses are mostly ventures and small enterprises. In particular, ventures have potentials to grow eventually to be global companies from local origins. All in all, the cooperative society will benefit from increased economic/noneconomic well-being only when they have successfully developed a financial system with various facets.

Incidentally, community business financing currently faces a difficult situation. Given this challenge, fortification and new creation of financing channels have been attempted. Microfinance organizations, as represented by shinkin banks, credit unions, and agricultural cooperatives in Japan, or credit unions, savings banks, and S&L associations in USA, have been deeply involved in community businesses. These financial institutions have the advantages of lower transaction costs, and ability to overcome the asymmetry of information more easily as they are locally based.

Cooperative financial institutions tend to have limited increasing returns, as they cover both for-profit and not-for-profit customers. This is one reason why they often have lower loan-to-deposit ratios. For the breakthrough, financing collaborations involving not only private citizens, NPOs, NGOs, civic groups, local & central governments, and development finance organizations, but also commercial banks, universities & research institutions, and investors in general are beginning to take place, as these entities pay more attention to the abilities to save, as well as abilities to form social groups spontaneously, on the part of the owner-operators of small enterprises. One such example is the development of mini bonds, the citizen participatory-type public offering bond, that are localized with public auction system, which invite the participation of local residents as investors, that cater to the needs of decentralization and/or progress in fiscal/financial reforms of governments.

5. Conclusion: main casts of the cooperative society

We need to create an environment where the funds belonging to the private citizens, who are the main casts in the cooperative society, are directed towards the vitalization of the regional economy and globalization "with a local origin". Faced with the ageing society, we also need to take advantage by further mobilizing the assets that belong to the senior citizens, with better returns. We can be successful in these efforts when we create a stronger cooperative society, and a financial system to support it. Thus, investments in community businesses, particularly in ventures and social businesses, should promise quicker cash conversion, as well as more affluent lives and worthwhile work experiences for generations, includes seniors.