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Economics tries to explain the complex and diverse activities of our economy under the simplest assumptions possible. The often criticized assumption of "economic man" (a person who acts only with the maximization of his own economic profit) is one example, as is the assumption that buyers and sellers trade in a "market" where production volume and prices are determined. Economists themselves know best that these assumptions are unrealistic. The question is to what extent the real economy can be explained by using these assumptions. When a problem arises that cannot be explained by these assumptions, one of the characteristics of economics is that it is flexible in considering how to change the assumptions. My field of expertise, "regional economics," introduces the element of "space" into economic theory, in other words, by thinking about the economy "spatially," we explain various problems that arise in the real economy and consider measures to address them. So, let's take a moment to consider what it means to think about the economy spatially.

Introductory economics textbooks often assume that, for example, a "consumer (buyer) who wants to buy apples" and a "farmer (seller) who wants to sell apples" are always next to each other. However, in reality, the two are separated by "space," with the buyer in Tokyo and the seller in Aomori. In order to trade, the consumer must go to Aomori to buy the apples, or the apples must be shipped to Tokyo. Therefore, when actually trading, the "transportation costs" of apples or people must be taken into account. Even if a large amount of apples are produced in Aomori, if the transportation costs are too high (or imagine a situation where there are no railways or highways), apples cannot be purchased in Tokyo.

From another perspective, apples are not only produced in Aomori, but also in Nagano, Yamagata, and Fukushima. You may have learned in social studies classes that "apples are a crop that prefers cool climates, so they are mainly produced in Aomori and other areas." However, that only explains half the truth. Since Tokyo has a large demand for apples (many buyers), it may be more convenient to produce apples in Tokyo because it saves on transportation costs. So why are there almost no "apples produced in Tokyo"? This is because the reality is that the extra production costs incurred by "trying" to produce apples in Tokyo (the fact that the resulting apples are not tasty is also a type of cost) are cheaper than the transportation costs of transporting apples from Aomori. This relationship is by no means immutable. Depending on the level of transportation costs and the results of apple breeding, the relationship could be reversed. Also, Nagano is much closer to Tokyo than Aomori (i.e. transportation costs are lower), but Aomori apples are still sold in large quantities in Tokyo because the benefits (quality, low production costs, etc.) of Aomori apples outweigh the increased transportation costs. Only when you think about it this way can you understand why various products are produced in specific places.

This is not limited to agricultural products such as apples. The logic explaining why an industry is located in a certain place is almost the same for manufacturing and even service industries. Rather, these industries are characterized by the fact that the relationship between production costs and transportation costs is more likely to be reversed, so that it is easier to see changes such as a former production area falling into decline and another area becoming famous as a production area.

The field of "regional economics" deals with such problems. When I say that I specialize in regional economics, I am often asked, "Which region do you specialize in?" However, regional economics is not a field that specifically considers only a specific region, but rather constructs and demonstrates a theory that can be applied to any region, whether it is Tokyo, New York, or Shanghai. The word "region" is often used to mean "the countryside," but the regions that regional economics deals with do not refer to places with such specific characteristics, but rather to universal "space." The basis of regional economics is to apply economic theory to various issues that arise when considering the element of space, such as the location of economic activities, trade between regions, and agglomeration.

The moment we begin to question where various economic activities are taking place, or should be taking place, it becomes the domain of regional economics. Let's consider some more concrete examples below.

When you think of milk producing areas, you may immediately think of Hokkaido. Indeed, looking at the statistics on milk production, Hokkaido ranks first in the nation, far ahead of other prefectures in terms of milk production (about 10 times that of the second-place prefecture). On the other hand, if you look at the second-place and below, Tochigi, Gunma, Chiba, etc. are ranked high. This is because there are advantages to producing milk near the major consumption area of Tokyo. If you only consider the land price, Hokkaido seems cheaper, but transporting milk from Hokkaido to Tokyo incurs high transportation costs. However, Tochigi, Gunma, and Chiba are closer to Tokyo, so the transportation costs are lower than those of Hokkaido. This relationship between land price and transportation costs is called a "trade-off." This relationship is shown in the bid rent curve (Figure 1). While transportation costs are determined by the distance from the market (here, Tokyo), the income of dairy farmers who produce milk does not change (assuming that). The land price is calculated by subtracting the transportation costs from the income (which is why Hokkaido has a lower land price), and so the relationship shown in Figure 1 is obtained. The slope of this bid rent curve varies depending on the crop, due to differences in freight rates for transportation (Figure 1 uses milk and wheat as examples). If farmers rent land from landlords (we will assume this), the landlords will likely rent it out to those who are willing to pay them higher rent, and as a result, milk, which has a higher freight rate, will be produced near Tokyo (to the left of point X in Figure 1).

(Plate 1)

That being said, you may often see milk with "Hokkaido" written on the package at supermarkets. In reality, the production cost of milk in Hokkaido may be cheaper, or the difference in transportation costs may have become smaller due to the development of transportation technology. Or, some consumers may choose milk from Hokkaido even if it is a little more expensive because they think of Hokkaido as the home of milk. If we take these factors into consideration, it is possible to explain why milk is produced in Hokkaido (we will not explain it here, but please think about it for yourself). However, even when using milk from Hokkaido, it is likely that the milk is packed in the suburbs of Tokyo in many cases. This is because it is much less time-consuming and less expensive to transport milk in large quantities in tanks or something, even when the cost of building a packing factory nearby is taken into account, rather than transporting individual cartons of milk from Hokkaido.

By the way, why does Hokkaido produce more milk than other prefectures? This is because Hokkaido not only produces milk for drinking, but also milk that is used to make cheese and butter. Incidentally, dairy products such as cheese and butter are often produced in Hokkaido. This is because butter and cheese produced from 1 ton of milk weigh much less than 1 ton of milk, meaning transportation costs are cheaper. Even though they are both dairy products, the reality is that milk for drinking is packaged near Tokyo, while butter and cheese are produced in Hokkaido, and this can easily be explained by the difference in transportation costs.

As another example, let's consider the location of a call center. In recent years, more and more companies are setting up call centers in rural areas. When I called a call center of a life insurance company, the other party called me back on my mobile phone, but I was surprised to see that the area code was "Nagasaki." This is because the operator's labor costs are cheaper than placing a call center in Tokyo, and the office rent is also much cheaper in Nagasaki than in Tokyo. In the case of call centers, I think that there are many cases where a toll-free number is set up and the company pays the telephone charges. Considering the population, there should be many calls from people in the metropolitan area, so it should be cheaper to have people call a call center in Tokyo from the metropolitan area than to call Nagasaki from the metropolitan area, but in recent years, telephone charges (= the transportation costs of "information") have become cheaper, making such a location possible.

In fact, in English-speaking countries, call centers are more globally located, and it seems that call centers for American consumers are sometimes located in the Philippines or India. This is not just because wages are low, but also because of the time difference, what is late at night in the US is daytime in these countries, so even if the call center operates 24 hours a day (in this case, it is normal for the call center you are connected to to change depending on what time you call), there is an advantage that there is no need to pay night shift allowances to the operators.

Finally, I would like to comment from the perspective of regional economics on the "Tokyo unipolar concentration" that is still ongoing in Japan today. Tokyo is home to many government offices, corporate headquarters, mass media, and universities, and as such, there is an influx of population into the greater Tokyo area. On the other hand, there is an outflow of population from other regions, with department stores in the city center closing and railway and bus routes being discontinued in less populated areas. In light of this, there is a never-ending debate about how "Tokyo unipolar concentration will only bring prosperity to Tokyo, while other regions will only suffer losses." Recently, there has been a lot of talk pointing out that "if the concentration of population in Tokyo continues, many local governments across the country will "disappear."

Of course, there are negative effects of population outflow from rural areas, and on the other hand, Tokyo, which receives the influx of people, also faces various problems (crowded commuter trains, a shortage of daycare centers, etc.) Here, let's consider from a different perspective the "benefits" that Tokyo's concentration brings to Japan as a whole.

The appeal of big cities, including Tokyo, is their "diversity." For example, a "clothing store" in the countryside may only sell safe white T-shirts, but a "shop" in Harajuku, Tokyo, sells T-shirts of various colors and patterns. In this case, a white T-shirt at a clothing store can be purchased for 1,000 yen, while a T-shirt sold at a shop in Harajuku may cost around 1,500 yen. Still, if it is something that perfectly suits your taste, it is human nature to want it even if you are willing to pay the extra 500 yen. From the shop's point of view, this means that in Tokyo, if the design is good, the T-shirt can be sold for 500 yen more. This will attract more "shops" with various designs to Tokyo. As more shops gather, more diverse designs of T-shirts will be sold, attracting people who are not satisfied with the designs so far to Tokyo.

The important thing here is that it is difficult to buy a 1,500 yen T-shirt (of various designs) at a "clothing store." This is because the demand faced by clothing stores in rural areas is small, so they have no choice but to sell "safe" T-shirts that appeal to everyone. In other words, as long as you are in the countryside, you will not be able to get a T-shirt that perfectly suits your taste. This is of course true not only for T-shirts, but for various other products, and the same can be said about places of work. For example, even if there is a person who is fluent in Arabic, there are very few workplaces in rural Japan that require his/her skills. However, if you come to Tokyo, it will be relatively easy to find a workplace that requires that skill, such as a trading company that deals with Middle Eastern countries.

(Plate 2)

 

Figure 2 summarizes these relationships. The concentration of many people (in Tokyo) leads to the accumulation of many businesses to meet the demands of these people. And the accumulation of many businesses leads to an increase in the diversity of goods and services supplied there, as well as employment. This increases people's satisfaction, and even more people gather in Tokyo. This is Tokyo's mono-concentration.

In this way, Tokyo provides a wide variety of products and services that satisfy the tastes of a wide variety of people, and provides jobs that utilize the abilities of a wide variety of people. These things are only possible because of the huge agglomeration that is Tokyo. Today, you might think that you can buy T-shirts online, but that is only true after many companies have been established. It is doubtful that companies would think of using the Internet to sell T-shirts in a place with nothing else. Rather, the important thing is that people outside of Tokyo can buy T-shirts with a wide variety of designs (including online) because many shops have been established in the agglomeration. Before you know it, things that attract people from all over Japan and even the world are being produced every day in Tokyo. This began when the population of Tokyo was concentrated in Tokyo, i.e., Tokyo's mono-centralization. From another perspective, it is also necessary to point out the fact that the "raw materials" and "parts" necessary for the diverse products produced in Tokyo are supplied from areas other than Tokyo. This brings jobs to the areas and enriches their economies, even if only little by little.

The existence of one of the world's largest metropolitan areas, Tokyo, in Japan is beneficial not only for those who live in Tokyo, but for the whole of Japan. It cannot be said that the rest of the country is suffering due to the concentration of power in Tokyo. Various services that exist and can be enjoyed are born in Tokyo because of the presence of such a huge concentration, and the existence of such a concentration often works to the advantage in business. Also, when considering competition with neighboring Asian countries, the benefits of having a major base like Tokyo in Japan are by no means small, and I think it is increasing Japan's presence in the world.

(Published in 2018)

Written by Masaya Suda (Ministry of Land, Infrastructure, Transport and Tourism, National Diet Relocation Website, "Shin-jidai" No. 79: 2016)