In praise of…Optimists

The chances that a small business will survive for five years in the United States are about 35%. But the individuals who open such businesses do not believe that the statistics apply to them. … If you interviewed someone who recently opened an Italian restaurant, you would not expect her to have underestimated her prospects for success or to have a poor view of her ability as a restaurateur. But you must wonder: would she still have invested money and time if she had made a reasonable effort to learn the odds—or, if she did learn the odds (60% of new restaurants are out of business after three years), paid attention to them?

The Engine of Capitalism, in Thinking, Fast & Slow, Daniel Kahneman

A shaggy dog story

Dusk rolled down the shutters of the day as we were botanizing inland of the Okhotsk Sea on an old dirt-track logging road, Route 1055, in the borderlands between Monbetsu and Okoppe. Our supposed destination that evening, the windy city of Wakkanai at the northernmost tip of mainland Japan, lay still over 200km and at least three hours’ away. As usual, we were running late.

“How about going back to Monbetsu and getting up early to knock off the drive?” optimistically volunteered Dr. T, who in his natural habitat is rarely known to rise before ten.
“Why don’t we try and get halfway up the coast?” I groped on the map for a settlement of any size. “Say to Esashi?”
“Will there be anywhere to stay?”
“There’ll be somewhere,” I replied without conviction.

The Osaki Ryokan had been built not long after the war, volunteered a scion of the extended family who run it, and it showed, in the time-burnished floorboards and the plywood doors to our rooms.

“Are those where they keep the dead relatives?” quipped Dr. T, pointing to the row of chest freezers. To judge from the glimpse I had later of the family drawing room, with its row of severe oil portraits of deceased forebears above the fireplace, hung at an angle so they frowned down on the living, it was a plausible enough hypothesis. Dr T. declared that he needed an hour to process the fruits of the day’s pillaging and made it my mission to scout out somewhere to eat—and, more importantly, drink.

It was Saturday night but the streets of Esashi, famous—if famous for anything—famous for its kegani horsehair crabs, were deathly quiet, as quiet as the graves in which many of its residents already have one foot. You don’t by now, I’m sure, need me to rehearse the demography, but I will anyway: 1970 population 15,800; 2010 population 9,100 (down 42% in 40 years); projected 2035 population 5,900 (down another 36% in 25 years).

“It’s crunch time now for Japanese politics,” bellowed the enigmatic because unsponsored sign above a shop that, the two wall-mounted pillboxes hinted, had just made it into the age of the credit card. Was this a heartfelt cry from a lone individual, sick of petty politicking far to the south? What, if any, thoughts or actions was it intended to provoke? And how soon, exactly, was now?

Plaster and signboards were falling away to reveal the ancient woodwork below: this had once been a ceramic-ware store, but half of the Aegean sailboat sign had vanished. The sake-swilling pot-bellied tanuki badger reminded me of Dr. T—and myself.

There was something starkly heads-and-tails beguiling about the Suntory Bar Toi et Moi.

Back to the quest: spatters of chuckles and cackles filtered out through the cracks in a few red-lantern joints, but these joints I rejected, knowing of Dr T’s intense predilection for the alcohol of the grape over the grain. Almost next door to the ryokan, though, was a restaurant whose name, 4Quattro, betrayed Italian pretensions and the presence of wine. Inside was a revelation: the interior had plainly been very recently and very expensively kitted out in a chorus of chic beiges and blonde woods, with Marcel Breuer cantilevered-steel and cane-backed Cesca chairs from the heyday of Modernism (yes, I confess to a chair fetish), expansive tables with immaculate white tablecloths and dun under-tablecloths, and sensitive spot and recessed ceiling lighting. The assemblage would not for a moment have looked out of place in one of the world’s major metropolises—indeed, it would put many restaurants in many of them to shame.

4Quattro was run by a young local couple, perhaps on the cusp of their thirties, with gender roles entrenched: he manned the counter and cooked, she, baby strapped to breasts, flitted around the dining area, toting the near-unreadable moveable feast of the day’s handwritten blackboard specials. In the depraved lands from which Dr. T and I hail, she would be filed as a “yummy mummy” or more crudely as a MILF. The Esashi Tourism Board (yes, such a body exists), does 4Quattro no favors and underscores the highly gendered nature of the Japanese dining experience by making reference to a “chic interior perfect for women”. For a while, we had the restaurant to ourselves, but maybe a dozen diners had come and mostly gone, all but a couple of them female, by the time we drunk-tumbled out.

We were more interested in matters oenological than gastronomical, and the wine list—red or white, glass or bottle—was a let-down, but Dr. T, more of a globe-trotting gourmand than I, declared the grilled sea bream to be as fine as anything routinely rustled up in the better kitchens of London or New York. How long, I asked mummy, had they been open? About eighteen months. I didn’t have the heart to ask her to estimate her chances of surviving the next eighteen.

Subsequent investigation, courtesy of the Food Business Research Institute and other luminaries, suggest that the Japan bar and restaurant bankruptcy rate is only half that of the US, with a fifth of those founded in the three years previous to 1999 (but a quarter of rameneries and the like) having gone out of business. This might, paradoxically, be due to the greater caution of the Japanese entrepreneur. Still, the industry is contracting, with the number of bars and restaurants peaking at a scarcely credible 846,000 in 1991 (one for every 150 or so people) and falling to a still staggering 673,000 in 2009 (down 21%) and the market value peaking in 1997 at Y29.0trn and falling to Y23.6trn in 2010 (down 19%), a decline in both nominal and real terms, and 4Quattro is a very unlikely restaurant (in 2006, only about a tenth of all restaurants were classified as Western) with very high overheads in a very unlikely place, from whose already threadbare catchment area we can exclude the old, the young, the poor, the fisherfolk, and most men. I wouldn’t want to wager on 4Quattro’s chances of long-term survival but I am selfishly grateful for the optimistic bias of its instigators, even though that bias may ultimately come at great personal cost.

Furiously botanizing, toward Hamatonbetsu up the Okhotsk coast we trundled, as backward ran sentences until reeled the mind.

**********

Most of us view the world as more benign than it really is, our own attributes as more favorable than they really are, and the goals we adopt as more achievable than they are likely to be. We also tend to exaggerate our ability to forecast the future, which fosters optimistic overconfidence. In terms of its consequences for decisions, the optimistic bias may well be the most significant of the cognitive biases.

Thinking, Fast & Slow, Daniel Kahneman

Wake Wakkanai, or Cinema Paradiso, Hokkaido style

Although Wakkanai (from the Ainu yamu wakka nai, the swamp with the cold drinking water) features in all the best guidebooks, few Westerners ever make it there for the night. How few? In the year to end-March 2012, 30 Britons, 18 Germans, 123 Americans, 25 Canadians, and 46 Australians (ever the adventurers), that’s how few, according to the city’s preposterously comprehensive website.

“Everything’s brand new!” exclaimed Dr. T, gesturing with an arc of the arm at the 12-storey ANA Hotel (1994) and the sparkling station complex, which had been razed and rebuilt since my last visit three years before. “I’m beginning to suspect that Spike has been spouting guff all this time about the decay of rural Japan.”

Dr. T claims to be a depressive realist, usually prefacing references to optimists with an Anglo-Saxon expletive, but I was beginning to suspect that he had an unacknowledged streak of optimism buried deep within. Or that he was falling under the spell of the Potemkin Village bias that is one of Kahneman’s profoundest insights: What You See Is All There Is, or WYSIATI to its friends. Or that he simply delights in winding me up.

As Dr. T sieved fruit and catalogued the day’s plunder, I moseyed around the glossy new station.

Tell me what’s wrong with this picture. Give up? Allow me. Where do I start? First off, there’s noone on the bus. Not too surprising, you might think—it was a seven on a Sunday evening after all, and this could be taken as a sign of prosperity. Fair enough, let’s move on. Second, there’s only one taxi in the ranks; that there is one at all is a triumph of hope over experience, as the next—and last—train is not due in until 22:47, nigh on four hours’ maudlin wait away. Third, there is absolutely noone about, in vehicle or on foot. Fourth, and most intriguing, is that little neon-orange sign that blares out the single, magical word “CINEMA”. No, I tried to wrestle-reason with myself, no, no, noooo, surely nobody, however beholden to the opiate of optimism, could have… But they had.

I bought a platform ticket and eyed the timetable. Eight arrivals a day, eight departures a day, the last of which, the 19:24 to Horonobe, 60km to the south and with a 2010 population of 2,700, was idling away its last moments of leisure before chugging off. There were no passengers.

Later I was to discover that in fiscal 2009 Wakkanai station served just 266 train embarkers and disembarkers a day, that this number was down by a quarter in five years, that the platform count was reduced to one from two in the 2010 remodeling, and that the station, home to massive marshalling yards as late as the seventies, cannot now muster even a single set of points. To channel my imaginary potty-mouthed Jewish grandma superhero: and on this facelift you spent exactly how much?

About $50mn. Sorry grandma, I just couldn’t help it. B-b-b-but, I didn’t spend much of my money, please understand, most of the construction was financed by bonds and subsidies, so the bill will fall on future generations. “Putz!” Thwack! “Owww!”

Before I talk you (and myself) through the minutiae of the economics of movie theaters in Japan, let me take you by the hand and lead you through the (other) streets of Wakkanai, the ones that Catherine the Great—and Dr. T—didn’t see. Let’s start with a couple of aerial views, looking north from downtown.

The gaps that make the chessboard, now gone to grass or gravel, many being hawked as pay-by-the-month parking spaces, are empty lots filled with the specters of torn-down buildings—central Wakkanai was sardine-packed tight in the sixties—and give the district the air of a scaled-down rustbelt inner city in the US, although without the gun-toting, crack-peddling hoodlums. Level the many disused or underused buildings and the chessboard would open up further.

This grotty gem of a multi-tenanted zakkyo building, where we dined at the appropriately named Karaku (“Flower Pleasure”) on sashimi, is more representative of the architectural jewels of downtown Wakkanai than the new station complex.

Two very drunk men from the suburbs of Tokyo, celebrating their liberation from salaryman serfdom at sixty with a whistle-stop road-trip circuit of Hokkaido, discussed past and future routes with a passion I would not have been able to predict it was possible to possess. On noticing us, the more voluble of the pair established our native place and raised a wobbly glass.

“Aaah, Igirisu, totemo ii kuni da! Ōshitsu ga aru kara! Japan, ōshitsu! England, ōshitsu! Very good!”
“What’s he saying?”
“He’s saying that England and Japan must be united in friendship because of their royal family and imperial household.”
“Why on earth does he think that?”
I was tempted to offer a republican toast, “Up the ōshitsu!”, but restrained myself.

Suddenly, the man’s face grew serious. He uttered a guttural growl and fell off his barstool.

To the right of Karaku is a bar emblazoned with declarations of fan fervor for four of Hokkaido’s pro and semi-pro sport teams: the Nippon Ham Fighters (baseball), Consadole Sapporo (soccer), Levanga Hokkaido (basketball), and Espolada Hokkaido (futsal). Sport fans are prey to the most optimistic of biases—the blind conviction, in the face of often onrushing lava streams of evidence to the contrary, that this season the pennant will come to its rightful home—but aside from the Ham (or the Meat Packers, as their sponsors unromantically call themselves in English), who are a regular presence in the Japan Series, the performances of this quartet must test the sunniest of dispositions. Consadole Sapporo oscillate between the first and second divisions, have never won anything other than promotion, and are about to be demoted to the second, demotion determined more swiftly than it has been for any J-League team, on a current record of played 29, won four, drawn two, lost 23, and a -49 goal difference. Levanga Hokkaido have only once tasted more victories than defeats in the five seasons since they were formed, have finished last twice and second-to-last twice in the eight-team Japan Basketball League, and started the 2012-2013 season with five straight losses. That the team features a guard who is 42 years old does not inspire confidence for their prospects. Espolada Hokkaido finished last season in ninth place in the ten-team Futsal League. Testosterone levels in the bar must be semi-permanently depressed.  

Out-of-the-way spots like Wakkanai are the last bastions of that endangered species, the unchained coffee shop. The intense slab-serif font is for me a madeleine ticket back to childhood.

Fancifully, I like to kid myself that the blue-bonneted woman waiting for the bus in Wakkanai, 2012, is the child in this photo, waiting for the bus in Wakkanai half a century before, and that the bus, like Godot, never came—and never will.

It’s the contrast between public-sector affluence and private-sector squalor, precisely the opposite of what prevails in the West, that’s so mesmerizing. To drape this trio with a negligee of statistics, the number of shops in Wakkanai fell by a quarter between 1999 and 2007, the number of people they employed fell by close to a fifth, and their aggregate annual sales fell by a sixth.

Historically, the Wakkanai economy rested on three planks: the fisheries, farming, and tourism. The fisheries were the first to be hit, with the Soviet Union’s 1977 imposition of a 200 nautical mile exclusive fishing zone; the catch fell by four-fifths between 1976 and 2008 and its value by two-thirds. The implosion of the fisheries coincided with the population peak in 1975, at 55,500. By 2010, the population had fallen by close to 30%, to 39,600, due mainly to an exodus of young people in search of work. If you are going to run a successful cinema, young people are what you need, and Wakkanai does not have many of those, or at least not nearly as many as it once did: the population of 15-29 year olds more than halved in the three decades between 1975 and 2005 and fell by more than a quarter in the decade between 1995 and 2005 alone. As measured by production value, farming—mostly dairy cattle—peaked in 1985 and has been gently ebbing ever since, with the number of farm households falling by a third between 1990 and 2005. Fickle tourism stepped in to fill the breach.

That this ghastly 1952 trawler owner’s residence has been turned into a museum should be enough to convince that Wakkanai itself is bereft of tourist charm: its appeal lies chiefly as a portal to the Rishiri-Rebun-Sarobetsu National Park, and in particular the volcanic-dramatic  island of Rishiri, seen here at dusk.

Wakkanai then fell prostrate victim to one of the cruelest and oddest of boomlets, the remote island boom (離島ブーム) of 1998-2002. The total tourist count, including day-trippers, peaked in 2002 at 818,000 and fell 43% to 456,600 in 2011, while the total number of nights spent in Wakkanai accommodation peaked in the same year at 473,700 and fell 25% to 356,500 in 2011, as tourists were lured away by whatever the TV wide-shows told them was hot that season. In 2002, Wakkanai was declared a kaso chiiki, a district of underpopulation, and by 2007, according to an admittedly unsourced comment at the Wakkanai Wikipage, 29.9% of Wakkanaikers were telling municipal pollsters they either wanted to move out of the city or were actually planning to do so.

“And into this you built not just a cinema, but a miniplex with three screens and 250 seats?”

On the day after I returned to Tokyo, an optimistic article in the Nikkei—and the Nikkei, which sees its primary responsibility as being to rustle those pom-poms as a cheerleader for corporate Japan, always likes to look on the bright side of life—enthused about how entrepreneurs are endeavoring to infuse fresh life into smaller cinemas, defined here as ones having fewer than five screens (a category into which T-Joy Wakkanai most definitely falls) by making them more distinctive, but even the optimism of the Nikkei could not disguise the bleakness of the outlook for smaller cinemas, whose nationwide screen-count, it reported, had fallen by 60% in the last decade, from around 1,250 to 500. Another Nikkei article I unearthed revealed that annual ticket sales had been pancake flat at 160mn-170mn last decade, before cratering to 145mn in the crisis year of 2011. As go ticket sales, so go box office revenues, which held steady at around Y200bn for a decade before slumping to Y180bn last year.

“And into this you built a miniplex and have the temerity to charge Y1,800 ($22.50) a ticket, when incomes in Wakkanai are half those of Tokyo, where tickets cost the same?”

My rule-of-thumb—whence it came I know not—has always been that no cinema, either miniplex or multiplex, is viable in a Japanese city with fewer than 100,000 potential cineastes. Was I right, though? Anoraks on and away we go! There are only three places on Hokkaido with fewer than 90,000 people that have cinemas: Wakkanai, Nayoro (31,000), home to a magnificent 1973 single-screen flea-pit, the Nayoro Daiichi Denkikan (the Nayoro Number One Electric Pavilion, 名寄第一電気館), named in tribute to the first cinema in Japan, and Urakawa (14,000), home to the 93-year old, 48-seat Daikokuza (Big Black Theater, 大黒座), both of which are firmly on my next Hokkaido itinerary. In contrast, everywhere with more than 90,000 people has at least one multi-screen movie house.

Anorak aglow with excitement, I expanded my unscientific analysis to 10 randomishly chosen ruralish prefectures and found just four cinemas in places smaller than Wakkanai: two were in the suburb-shadows of biggish cities, one was a 96-seater relic in the Tochigi town of Motegi (14,000), and one a true mystery. (If anyone can explain why there is an eight-screen, 1,494-seat multiplex in the Ishikawa city of Kahoku [34,000], do please get in touch). Between them, these 10 prefectures have 46 cities with populations between 40,000 and 90,000, but just six have commercial cinemas. However, there are only five cities with more than 120,000 folk that are cinema-less, the largest being Ashikaga (152,000) in Tochigi. My rule-of-thumb, it turns out, was more or less on the money.

There are two ways of forensically examining the viability of a cinema: from the inside and from the outside. Not having access to the books of T-Joy Wakkanai, which is owned by a subsidiary of one of the old Golden Age Big Six movie studios, Toei, we’ll have to go for the outside approach. Time to brush up that kindergarten maths… T-Joy manages to squeeze 20 showings out of its three Wakkanai screens (wring that asset dry!)

Theater 1: 66 seats, seven showings = 462 people/day
Theater 2: 86 seats, six showings = 516 people/day
Theater 3: 98 seats, seven showings = 686 people/day
Total: 1,664 people/day

At the 2010 census population of 39,600, it would take just 24 days for whole of Wakkanai to go to the cinema once. Assume 1.33 cinema visits a year, the national average of late, and it would take 32 days for the whole of Wakkanai to complete the ritual of its annual movie excursions. What happens in the other 11 months of the year?

Alternatively, look at it like this: 1,664 seats/day x 365 days a year = 607,360 people/year capacity; with 52,669 visits @ 1.33/year = seat occupancy rate of 8.7%.

So now you know: if you turn up one icy February day in Wakkanai, when the wind chill makes it feel like twenty below, and fancy catching a matinee, you probably won’t need to book ahead. Whoever said that Spike serves no practical purpose?

Eight point seven percent. That is a vanishingly low occupancy rate for a bums-on-seats operation: hoteliers, railway operators, and airlines only stop sweating and start smiling when their occupancy rates hit 60%-70%. As it turned out though, I had more to learn about the business model of the movie world, and learn it I did, from Entertainment Industry Economics: A Guide for Financial Analysis, by Harold L. Vogel, writing here of the US:

It can be determined that in 2009, the maximum theoretical annual gross, based on 39,717 screens, was about $286 million per day or about $104 billion per year. The industry obviously operated well below its theoretical capacity, because there are many parts of the week and many weeks of the year during which people do not have the time or inclination to fill empty theater seats: in 2009, the industry’s average occupancy rate per seat per week was roughly 2.3 times, and box office receipts of around $10.6 billion in 2009 were thus only around 10.2% of theoretical capacity.

So T-Joy Wakkanai might after all be only a percentage point or two from normality—and, presumably, profitability! Don’t get too optimistic. This begs the question of why small-city Japan isn’t stuffed to the gills with miniplexes, to which my best, uninformed, answer is that the economies of scale only kick in at above, say, a 500-seat, five-screen level: much of what little money there is to be made from showing movies comes from the food and beverage (F&B) concession, with its 80% (my guess) cola and popcorn margins, which can be run by one uneconomically for 100 punters or economically for 500. (Should you be interested, by the way, T-Joy Wakkanai is hiring for its F&B concession, although at the low end of the Y680-Y850 hourly wage range, it will take you more than two-and-a-half hours to coin the dough to watch a flick). And what of the future? The projected 2035 population of 26,700, which may need to be cut given recent rates of outflow, and only one cinema visit a year yields a seat occupancy rate of 4.4%, at which point, presumably, T-Joy would pull the plug—although subsidies (and parent earnings) can soothe the sting of failure for so long…

Back in the sixties, Wakkanai had four cinemas—here you can see the Wakkanai Nippon Gekijo in all its tatty glory, showing a 1961 Michael “play it, Sam” Curtiz/John Wayne oater, The Comancheros (no wonder so many with a shred of sense gave up on the movies)—but the last one closed its doors in 1988, done in by the usual suspects.

All that was left, then, was to track down the optimists behind the cinema revival. They had, I figured, to be local, and they had to be dreamers.

Yukihiro Fujita, chair of the company, Saihoku Cinema (a consortium of eight local construction companies), that administers the nuts and bolts of the miniplex, and Ippei Takahashi, the president, first meet in 1992 when Takahashi, who was running a video rental store, calls on Fujita, the boss of a construction company, Fuji Kensetsu, to expand his store. Takahashi had long been hurt by criticism that he and his ilk had killed the cinema, while Fujita was shocked when his young son misidentified the local culture center as a movie theater. In 2001, the pair take undubbed anime movies without subtitles to Sakhalin, where they receive a rapturous reception from the local children, and they awaken to the presence of cinemas everywhere on the island. What exactly happens next is glossed over in the sole interview with them I was able to dig up, but with Fujita the chair of the Wakkanai Construction Association and thus a pillar of the community, it’s not hard to imagine. Fujita claims that breakeven comes at 60,000 bums-on-seats a year (so I was, gratifyingly, not at all far off in my guesstimate), which would require 1.5 cinema visits/year from the good burghers of Wakkanai, but he defines the catchment area as anywhere within a 90km radius of Wakkanai, in which 78,000 live, and aims for annual attendance of 100,000. Much as I sympathize with the aspirations of the optimist, I struggle to conceive of anyone in, say, Esashi making a 180km round-trip on roads treacherous with ice half the year for the disposable visual and auditory pleasures of—what’s on this week?—The Bourne Legacy, The Hunger Games, or Bayside Shakedown: The Final.

Yet on they dream, the optimists, and on they build.

**********

The evidence suggests that an optimistic bias plays a role—sometimes the dominant role—whenever individuals or institutions voluntarily take on significant risks. More often than not, risk takers underestimate the odds they face, and do not invest sufficient effort to find out what the odds are. Because they misread the risks, optimistic entrepreneurs often believe they are prudent, even when they are not.

Thinking, Fast & Slow, Daniel Kahneman

Bitter oranges

“There’s a place just over the road that’s calling itself a bistro and looks like it’ll have a decent enough supply of Chateau Chunder.”
Dr T’s Aomori City hotel room floor was strewn with scores of seed-filled Manila envelopes, while the bathroom floor had sprouted a muddy volcano of soil, leaf-litter, and amorphous forest detritus. Had the room been fitted with ceiling-embedded surveillance cameras, he would have faced instant arrest as a one-man mobile drug laboratory.
“With you in ten!”

Bistro Daidai, we learned at the end of yet another wine-trodden evening, was named after the bitter orange (aka 橙, “the climbing tree”, Citrus aurantium var. daidai, Seville orange, sour orange, bigarade orange, and marmalade orange). Why, I never got so far as to ask. It had three tables seating four and half-a-dozen seats at the counter. We were the first customers that Friday night. There were three twentysomethings behind the counter, a woman and two men, one of whom cackhandedly spilt wine all over the table—and me. The table was mopped clean and toweled dry but I was left with bruise-blotched trousers. How long had they been open? About four months, came the reply.

Dr. T grew glum. “You know, we don’t do these micro-restaurants in the UK.” Dr. T likes to claim that sauce-soaked years of depression have dulled his sense of empathy, but as a former junk-bond analyst well versed in the ways and woes of troubled enterprises, a man who once described himself in an essay titled On Optimism as “Mozart to the Salieri of really bad decisions”, a twice married (“the triumph of hope over experience”) part-owner of a London trattoria, and a (necessarily optimistic) nursery entrepreneur who flirts with failure the way a lothario flirts with the ladies, I could tell that, as we wolfed down pâté de campagne that would not have disgraced a prix fixe menu in the Dordogne, he was sizing up the bistro’s chances of survival—and was pained at the message the mental spreadsheet sent.

Conversation turned to the contrasting approaches to bankruptcy in the US, the UK, and Japan, with Dr T sagely concluding that the UK offers the worst of all worlds: in the US the banks are quick to call in loans but there is little stigma attached to bankruptcy, in Japan there is stigma but the banks are infinitely forbearing, while in the UK the banks are brutes and the stigma remains acute.

Later, alone, I cradled a glass of red up to one of the city’s busiest intersections and loitered awhile, tallying up the percentage of taxis with passengers this Friday night—about one in ten. It was hard, I felt keenly, to be optimistic about the fate of Bistro Daidai. 

To the outsider, Japan, with its stratospheric suicide rate and sober demeanor, is not obviously a hotbed of optimism, and indeed the Japanese delight in telling pollsters that they will cede to noone in their pessimism about their nation’s prospects, but I would invite you to take the three case studies above, and the optimism embedded in the sundry acts of creation, as evidence, albeit fragmentary and partial, to the contrary. This should come as no great surprise, though, as psychologists and neuroscientists have made great strides in recent decades in the study of the enigma of optimism, and the evidence is mounting that we have been hard-wired by evolution to be genetically (more or less) optimistic. Here’s Tali Sharot, neuroscientist and author of The Optimism Bias: Why We’re Wired to Look on the Bright Side, on our ingrained propensity for optimism:

How is it that people maintain this rosy bias even when information challenging our upbeat forecasts is so readily available? Only recently have we been able to decipher this mystery, by scanning the brains of people as they process both positive and negative information about the future. The findings are striking: when people learn, their neurons faithfully encode desirable information that can enhance optimism but fail at incorporating unexpectedly undesirable information. When we hear a success story like Mark Zuckerberg’s, our brains take note of the possibility that we too may become immensely rich one day. But hearing that the odds of divorce are almost one in two tends not to make us think that our own marriages may be destined to fail.

Why would our brains be wired in this way? It is tempting to speculate that optimism was selected by evolution precisely because, on balance, positive expectations enhance the odds of survival. Research findings that optimists live longer and are healthier, plus the fact that most humans display optimistic biases—and emerging data that optimism is linked to specific genes—all strongly support this hypothesis.

Perhaps you’re an optimist—or at least some of your best friends are optimists (likely). Perhaps you think that tomorrow really will be better than today, and the day after tomorrow will be better still (unlikely), or that, like Charlie Brown, this time Lucy really won’t take away the football at the last moment (very unlikely), or that the Japanese stock market really will one day recapture its Bubble luster (still more unlikely). [Finance industry wisecrack: “What’s the definition of an optimist?” “A Japanese equity portfolio manager who irons five shirts on a Sunday night.”] Perhaps even I, guilty as I am of entrepreneurial acts, perhaps even I am an optimist. If you are an optimist, then I wouldn’t want you on my team if I were planning something novel and resource-intensive—bring me the morose and misanthropic. But praise be heaped on the shoulders of those who sacrifice their wealth, if not their health, to bring us, however fleetingly, eateries where none, in a world of depressive realists, would be, and on the shoulders of those who conspired to restore the simple magic of projector, screen, and dark expectant hush to a struggling city at the end of the world.

38 responses to “In praise of…Optimists

  1. When I read your entries I always get a feeling of “Last chance to see”, only applied to humanity in Japan rather than wildlife. I wonder, for instance, at what level of patronage does a railway line get closed in Japan, though I suspect that the decision is often made by the intervention of nature. Please keep on writing. This blog was a source of inspiration on my last visit to Japan and for the next one planned.

    • Thank you for the kind words.
      “I wonder, for instance, at what level of patronage does a railway line get closed in Japan”
      That’s a tricky question to answer, with many variables–one key one is chronology (Hokkaido lost a lot of its lines in the run-up to privatization in the mid-80s, but politicians seem more cowardly these days about closing loss-making lines); another key one is ownership (private-sector or public-private partnership owners are keener to close than the state); to these you can add the resistance (or otherwise) of local communities and a nebulous “strategic significance”–in the case of Wakkanai, I suspect it wouldn’t do to sever the Soya mainline where it runs out of passengers (about 150km to the south, by all accounts), because the northernmost city “should” have a railway line. All former Japan National Railway lines on Hokkaido and Shikoku lose money; JR Hokkaido is subsidised to the tune of c$300mn a year (not sure about the sum involved for Shikoku, but it will be smaller). All loss-making lines on Honshu, and there are many, are subsidised by the vast profits made by shinkansen and the slightly less vast profits made by big city commuter services. And you’re right about nature–JR East lost parts of a few lines to the tsunami and is trying to wriggle out of rebuilding (some of) them. The rate of line closure in recent years has been molasses slow, which gives the tourist an opportunity to ride on some of the oddest and emptiest trains in the world!

  2. To judge by the press reports on Sharp, Panasonic and Sony, you don’t need to leave major cities for your dollops of pessimism.

    It makes me wonder which misallocation of capital is more destructive
    - Unwarranted optimism of the private sector, or
    - Public spending, where the users of capital aren’t the ones presented with the bill.

    There is a lot of commentary about how the Japan bust experience is in the process of being repeated in China. links to a few of these are below-

    http://cfapodcast.smartpros.com/web/live_events/Annual/Pettis/index.html
    This is an hour speech from May 2012, and is as clear as can be about the Chinese economy.

    also, most recently from Pettis (comments are useful also)-

    http://www.mpettis.com/2012/10/27/when-the-growth-model-changes-abandon-the-correlations/

    http://www.livestream.com/theeconomist/video?clipId=pla_36cbc150-b893-4af6-b820-0570d08fd4da

    Hugh Hendry is in the first 21 minutes of the video from a week ago, and is well worth viewing. – there are other Economist panel discussions, etc. that may also be of interest.

    And – completely off topic, you might like this book

    The Hare with Amber Eyes by Edmund DeWaal- a family memoir that deals with the travels of a netsuke collection from Japan to Europe and back, with a tale of the utter destruction of the wealth of a family that rivaled the Rothschilds.

    • “To judge by the press reports on Sharp, Panasonic and Sony, you don’t need to leave major cities for your dollops of pessimism.”
      Well, indeed–although I’ve been combing through corporate results recently and have been mildly surprised about how many firms are doing okay and muddling through (though my expectations were low). Telecoms are mostly in fine shape, real estate is doing surprisingly well, there are pockets of health in machinery, the automakers are still mostly powerhouses…
      “It makes me wonder which misallocation of capital is more destructive”
      That’s a very good question. I’d have to go instinctively with public spending, as I’m not wholly convinced entrepreneurs are orders of magnitude more optimistic than average (and hence the average bureaucrat) and it must always be easier on the conscience to gamble with (very distant) Other People’s Money. Certainly the physical fabric of Japan, littered with elephantine government boondoggles as it is, would suggest that conclusion. Wonder how we could measure it, or if anyone’s tried.
      THank you for the China links, will try to squeeze them in soon. And Hare with Amber Eyes–yes, read and enjoyed, although not being personally these days very attached to material possessions (though I’ve had my phases) it was hard to get to grips with one of the books most wrapped up in “objets d’art” and “objets” in general that I’ve ever read.

      • Furthermore, medical device companies, pharmaceutricals, gas utilities and even chemical industry (among others) are looking interesting (not only muddling through, but increasing book value by a fare amount). Not to mention the sea of net-net stocks that do exist in Japan.

      • I can’t really comment–too close to my day job–but if you like your net-nets and your 7703s, do have a look at 7744.

  3. I lived in Hokkaido as a kid (1965-1973), which appears to have been during the demographic and economic peak of activity there, so it has been interesting to read your blog posts from the outer reaches of the island. Your story of the Wakkanai cinema struggling to survive in a too-small city reminded me of my post-Hokkaido-home-town in West Texas, where a shrinking population and competition from mutli-plexes in a bigger city 60 miles away killed off the only theater that remained in the 1970s, just as I was leaving town for college.

    But a high school friend of mine managed four years ago to restart the theater, the Plaza (http://www.vernonplaza.com), and seems to be making a go of it in a town of only 12,000 residents. If you ever want to take your de-population and decline tour to the United States, you might want to start in Vernon, Texas, and drive straight north, along the 100th meridian, all the way to Canada. The falloff in rain along that line makes dry-land farming marginal for the rural plains towns along that line, but optimistic farmers tried anyway, and there were once towns of decent size all along the line. Not so much any more. But optimists continue to set up small businesses, as you describe, sometimes more out of nostalgia and a desire to keep the place alive than out of sound business sense.

    • “I lived in Hokkaido as a kid (1965-1973), which appears to have been during the demographic and economic peak of activity there”
      That must have been a wonderful time to live there. While it wasn’t the demographic peak–that didn’t come until 1995 for the island as a whole–nor the economic peak, which probably came a few years later, I like to think of that era as the peak of expansion, when the furthest reaches of the island were still (just about) filling up and everything was still young and vital.
      Vernon, Texas, home of my father’s favorite trombonist, Jack Teagarden–fantastic! (And Roy Orbison–that is an outsized contribution to popular music). Your distances baffle and boggle the Japanese (and British) mind, though–noone here would contemplate a round-trip of 120 miles to a multiplex (would that be in Wichita?) Glad that your highschool friend can make a go of it–you can, I think, even in a town that small, if you have high national rates of cinema attendance, like the US, and if it’s a ground-up operation. The Wakkanai miniplex is imposed and top-down, though, which makes me suspicious about how much support from the locals it will get.
      I’ll take your 100th meridian advice to heart. I was thinking about doing a series titled “Japan: The View from XXX”, where XXX might be Seoul or Taipei or Shanghai, or equally San Francisco, or Detroit (as so many people tell me, rightly no doubt, that Detroit has all the best ruins). Bit too obvious, though, so I was contemplating a tour of South Bend, Elkhart, and Gary, Indiana.

  4. At the 2010 census population of 39,600, it would take just 24 days for whole of Wakkanai to go to the cinema once.

    Well, sure, but what else is there to do in Wakkanai?

    • Knit, weave, darn socks, watch TV, sip beer, repair fishing nets, look after the oldies, pop round to the local izakaya for a beer and nibbles, worry, watch some more TV, attend the PTA, go out with your construction industry buddies to a snakku, work on revitalization plans until one am, flop exhausted on a futon after a 14-hour day, play “social games” on a smartphone, watch videos at YouTube for free, watch videos from the local rental place for Y200/night, masturbate, make love, gulp shochu, kiss, make up, cook curry… Oh, and I forgot–there’s always pachinko.

  5. Spike, I love you. Having lived in a Japanese end-town many moons ago, and having now fled back West with only bittersweet memories to hold on to, you articulated everything I felt and suspected there, and so much more.

    Can I ask you to please visit Kiryu, in Gunma, should you ever be nearby? I would dearly love to read your appraisal of the place. Or indeed help you to compile it.

    And, sorry to be contrary, but are there any remaining Japanese boom towns? Are there any genuine residual pockets of optimism and growth, and what can they tell us?

    • Thank you for the kind words. Are the Japanese “end-town” and Kiryu one and the same, by the way?
      Kiryu is a good one–without ever having been there, based on its history and demographics alone I sent my German photographer friend, Juergen (http://www.juergenspecht.com/explore/) there about 18 months ago, although he didn’t quite come back with the goods (sorry Juergen).
      You might be interested in this book of poems partly inspired by Kiryu:
      http://www.japantimes.co.jp/text/fb20100124a2.html
      “And, sorry to be contrary, but are there any remaining Japanese boom towns?”
      Well, that’s not being too contrary. “Boom towns” would be putting it a tad strongly, but there are plenty of places that are doing fine, even some in rural Hokkaido (thanks to protectionism)–lots of dairy farmer McMansions around Obihiro and even the fishing villages to the east of Hakodate (though not so much to the west) are full of spruce new-builds. I guess these can tell you that protectionism works (for certain communities, at the expense of the others). There are also fairly remote places like Kanegaskai in Iwate, home to the plant of Toyota subsidiary Kanto Auto Works, which assembles the fabulously successful Toyota Aqua (which tells us perhaps nothing more than that Toyota is probably still the world’s toughest automaker).

  6. Fixed that for you: “We were their only customers. Well, it was a Friday night.”

    Come now what’s the use of having trademark phrases if you don’t use them?

  7. Great article and great reference to Kahneman’s work which I enjoyed. I’m on a journey to the Japan in a few months, while being optimistic, I do maintain a level of realism that is as relevant as ever considering Japan’s “situation”

    Thanks and hope to read more from you.

  8. Wonderful but you failed to acknowledge Asia League Ice Hockey … which would only strengthen your fascinating discussion of optimism!

    • WYSIATI–I don’t know much about Japan sport beyond baseball and footie, so I focused only on the four clubs on the bar door. But it looks as if the Nippon Paper Cranes (where do they get these names) and latterly the Oji Eagles have been quite successful, no? Lots of paper money involved…

  9. Elegiac. Beautiful. Poignant. Brilliant.

    Sorry, nothing intelligent to add or to say… My comment is merely entitled “In Praise of Spike”!

  10. A stimulating read as always. Despite the grimness of your descriptions, I keep adding these towns to the list of places I’ll visit next time I’m in Japan.

    The notion of excess optimism (still) is a nice corrective to the usual notions of rampant pessimism in Japan now, such as this article:

    http://articles.marketwatch.com/2012-11-01/commentary/34839114_1_japanese-economy-japanese-companies-auto-industry

    • That article is the purest drivel! Why can’t anyone write something original about this place! (Oh, maybe…)
      Do visit Wakkanai if you get the chance–the coast on the Sea of Japan side 100km to the south is about as wildly beautiful and ruggedly remote as anywhere in Europe.

  11. A joy to read as always.

    “. . . with the number of bars and restaurants peaking at a scarcely credible 846,000 in 1991 (one for every 150 or so people) . . . ”

    I should say so! Tokyo must have 790,000 restaurants and bars by itself!

  12. I’m stuck on $22.5 for a movie ticket in bumfuko Japan.

    • What is a movie ticket in the rest of the world?

      • Captain_Button

        On Long Island, New York, USA last sunday I paid $US 9.50 for first weekend showing of “Wreck-it Ralph” (2D). But for prime time and 3D it would be $US 15.50

        PS: You have a link wrong above I think, “the child in this photo” and “—here you can see the Wakkanai Nippon Gekijo” point to the same picture of the bus stop.

      • Thank you for the tip-off on the price of a cinema ticket in the real world–it aids in understanding the gulf between where Japan comes in the GDP rankings and in the GDP at purchasing power parity rankings–and also for the link advice–corrected.

  13. If you ever go to that direction, I think you will have something to say about Kurashiki too. I simply don’t get the charm of that town which seems to be another bubble-induced boondoggle (albeit from a different bubble long ago).

    • Are you referring Kurashiki in Okayama-ken? Hardly. The town is old as sin, the preserved quarter is beautiful, the Ohara Museum has probably one of the most impressive collections of art in the world for a museum that size in a city that size, it’s within a stone,s throw of one the great landscape gardens in Japan, not to mention the castle overlooking it, and is just down the road from the heart of Bizen-yaki. Did you, perhaps, miss all this? Can’t see how all this can be compared to a “bubble-era boondoggle,” or did I miss the Lithuanian-themed amusement park or porpoise rides?

      • Hi Jeffrey,
        It is nice to hear the praises about Kurashiki but there are a few details I would like to add. The landscape garden and the concrete replica castle are in Okayama city which is 20 km away by Sanyo-sen plus a 1.5 km hike from Okayama station. Bizen is a further 40 km away (maybe??) and is distinguished by the proliferation of kilns pumping out the beer jockeys and sake cups. Back to Kurashiki, it actually had a theme park on the other side of the station called Tivoli. Tivoli has died and is now an …. outlet mall! Does the Little Mermaid count as a porpoise ride? I think Pachiguy would like this nugget of information. There is a tiny independent cinema in the shopping arcade running to the right of Kurashiki station as you face the Bikan. If you visit, don’t make the mistake of going to Shin-Kurashiki which is a further 10 or so km to the west. The Kurashiki bikan area is lovely, however.

  14. Kahoku: Everybody drives in Ishikawa, the trains there suck. Could be a similar situation to that in Yamanashi- Kofu (just under 200,000 people) doesnt have much of a cinema, just a small Japanese movies only place, whilst Showa Town has a huge multiscreen thing.
    Lots of businesses have popped up in Showa over the last decade, since practically everybody drives in Yamanashi anyway the Showa government is apparently doing very well for itself in leeching from declining Kofu.
    Dont know for a sure but I’m guessing this small Ishikawa place could be leeching from kanazawa with the aid of lower land prices and taxes and easier bulding regulations, etc…. ?

    • Nearly chose Yamanashi as one of my 10 prefectures. Seems like Kofu has two cinemas, the Theater Central Be Kan and the Koho Cinema. Showa town has the big multiscreen in the Aeon Mall, right? Showa town in itself is an oddity: I suspect that it has been able to survive as a separate entity because it serves as a dormitory town for the four cities (principally Kofu) that surround it. Am I on the right tracks? (I’ve never knowingly been).
      “The Showa government is apparently doing very well for itself in leeching from declining Kofu”
      Yes, that sounds about right!
      The Kahoku conundrum is that it is a bit distant from Kanazawa and Kanazawa has five cinemas of its own; the first I checked, United Cinema Kanazawa, is alone a 2,456-seater nine-screen monster. But I need to apply my proprietary population-to-seat formula to Kanazawa city to see if it is severely undersupplied with cinemas. (You might be surprised how variable the data are: here are the provincial cities of Hokkaido ranked by people divided by cinema seat, with the lower number showing a place that is over-supplied and the higher number one that is under-supplied:
      Otaru 86.99
      Kitami 89.73
      Kushiro 106.21
      Asahikawa 149.04
      Wakkanai 158.40
      Tomakomai 159.23
      Nayoro 182.03
      Muroran 196.94
      Obihiro 272.5
      Urakawa 299.02
      Hakodate 670.94
      So there’s nearly a ten-fold difference between Otaru and Hakodate. I expect I’ve bored you now, but I find this kind of stuff fascinating…

  15. If I read another person emphasizing the “concrete replica” of this castle or that I’m going to stamp my feet and scream. A 20-something ignoramus American was complaining about Nagoya-jo being concrete as well in the JT last weekend. I guess he had never heard of WWII or was not cognizant of the fact that most of the castles situated in urban industrial areas were destroyed during the war and that it was pretty remarkable that any of them were rebuilt whether it was in concrete or spit and wattle.

    I had forgotten about Tivoli Gardens. However, it opened in 1998 and post dates the bubble. The two times I had been to Kurashiki was nearly a decade before it opened.

    • Not being a Kansai expert, I won’t wade too far into this discussion, except to say that I was recently at Matsumae Castle (the only [concrete or spit and wattle] castle on Hokkaido), and while it was a bit grim and unforgiving on the inside, it looked fine enough on the outside if you squinted–but isn’t that a parable for the whole Japanese built environment? (OK, let it fly, Jeffrey…)

      • Oh, I don’t think so–hard to argue with the numbers. TDL continues to exert a mysterious and mesmerizing hold over the national psyche. Although I would note that the year-on-year comparisons are not so challenging, given how much of April-September 2011 was a period of mourning and restraint, and the real comparison should be made against April-September 2010 numbers. That the underlying Nikkei article reports, with its usual optimism masking a hint of desperation, that 60% of major theme parks reported visitor numbers up year-on-year, really makes you wonder how 40% of them couldn’t do better than in 2011…

  16. “…too close to my day job–but…”

    That comes hardly as a surprise to me ;)

    “if you like your net-nets and your 7703s, do have a look at 7744″

    Doesn’t surpirse me neither, that you`re handing out the crappiest net-net you could find on any of the japanese exchanges ;) (must have been searching quite eagerly to come up with such an appaling security issue)

    Regarding the blog. Superbly written. Very usefull for augmenting my english vocabulary. But the photos. They`re horrible. Composition, contrast, shades and shadows are just dreadful. Can’t you see and capture the beauty in the process of decay? Hope they`re not coming from my german compatriot. If so, please give him a book from our good old Leni Riefenstahl as a present for christmas (should come with a nice comment, like “two worldwars and one worldcup”; “for my panzergrenadier”, or something similar. Well you’re a brit, you’ll come up with something funny in this respect).

    By the way. (Rural) Japan looks pretty similar to western germany (bochum, duisburg, dortmund, even berlin ….)

    Streets and bridges to nowhere we’ve got too. But they are to be found in the east of germany.

    Things not to be found in germany: undervalued stocks.

    Best regards

    • Ooh, you didn’t like 7744? Bulletproof balance sheet, revenues stabilizing in H1, even a small net profit, management eagerly exploring new avenues, shares at below 0.2x book, I mean really, what’s not to like? Searching? No, I’ve been following 7744 for a couple of years now, waiting for the right entry point. (Joke, joke…)
      “But the photos. They`re horrible. Composition, contrast, shades and shadows are just dreadful.”
      Blame my Canon G String. But the funny thing is, I rather like my photos. (Well, I would, wouldn’t I?) I’ve been quietly evolving a philosophy of “found photography” these past few years that involves as few technological adornments as possible. Your human eye, after all, is not in a constant process of composition and contrast optimisation for some finished photographic “good”. Most of what it receives every day is rather banal and under-processed and I like capturing that. Deep down, I hate Leni and Henri and Robert and all the rest of them, to be honest, because I find them dishonest. (You could ask why I put so much false trust in words, but that’s another story).
      “Hope they`re not coming from my german compatriot.”
      If you mean my pal Jurgen Specht, certainly not. But some of my photographic inspiration comes from your late compatriot W.G. Sebald, whose gorgeous books are decorated with smudgy black-and-white photos that make mine look like the work of a Titian or Turner. But I adore those photos. Perhaps I need even less artifice and more smudge in my photos…
      “By the way. (Rural) Japan looks pretty similar to western germany (bochum, duisburg, dortmund, even berlin ….)”
      I’m keen to plan a holiday in the Lander of the East with the most grievous demographics–Mecklenburg and Saxony-Anhalt come to mind. Any recommendations?
      “Things not to be found in Germany: undervalued stocks.”
      As you didn’t fully appreciate the charms of 7744, much to my chagrin, might I recommend 3409?

  17. I’d rather keep reading your blog (with a lot of scpetisism regarding your view on Japan’s economic prospects) than following your stock recommendations. It’s better to my wealth.

    Do they really pay you in your day to day job, for coming up with this shitty issues? What a weird bunch the japanese are. Must be a short sellling boutique. Although, would be careful with shorting it at this stage. The high tide lifts all the boats. Only when the low tide arrives, do we see who swims naked.

    “Deep down, I hate Leni and Henri and Robert and all the rest of them, to be honest, because I find them dishonest. (You could ask why I put so much false trust in words, but that’s another story).”

    That’s odd. Thought you’re kind of brothers in spirit, by bending the truth in such a stunningly beautiful way and your esteem for technically impeccable craftmanship (you in writing and she in photography).

    “I’m keen to plan a holiday in the Lander of the East with the most grievous demographics–Mecklenburg and Saxony-Anhalt come to mind. Any recommendations?”

    Oh, loads of recommendations. You should start in berlin, the city where almost 30% is on the dole and where the politicians squande the money like mad and nobody cares. Check it out, you’ll love it

    https://www.google.de/search?q=verlassene+orte+berlin&hl=de&tbo=u&tbm=isch&source=univ&sa=X&ei=3k6uUMrUJ8rJswaCv4HICw&sqi=2&ved=0CC8QsAQ&biw=1440&bih=726

    A must see for you is the “VEB Kulturpark Plänterwald”, close to berlin which went bust in 2001 (don’t ask me how much state money was burned)

    From there, you should check out brandenburg (skip potsdam, it’s too beautiful)

    http://einestages.spiegel.de/external/ShowTopicAlbumBackground/a24972/l0/l0/F.html#featuredEntry

    Beautifully decaying ex- socialist structure to be found.

    On your way from brandenburg to meckpom, you’ll find countless deserted villages and small cities, with state of the art german infrastucture and no human or vehicle to be seen the whole day.
    All the money squandered (roughly 2 trln euros), dont turn up as debt in the official german statistics, but rather as an asset. That’s because our politicians somehow managed to declare those sums as “Sondervermögen” (= special patrimony). Isn’t that great.

    Well. Drop me a line when you’re in Berlin and I’ll give you more tips.

    Kind regards

    • “Do they really pay you in your day to day job, for coming up with this shitty issues? What a weird bunch the japanese are. Must be a short sellling boutique.”
      Hehehe! No, they most definitely don’t pay me to come up with these “shitty issues”. But if you part of spend your working days, as I do, leafing through that most marvellous tome, the Japan Company Handbook, your eye cannot but be arrested by some of the unsung names of pure quality. Might I recommend 5981, just upgraded to Buy by that mighty investment house, Tokyo Tokai Securities?
      “On your way from brandenburg to meckpom, you’ll find countless deserted villages and small cities, with state of the art german infrastucture and no human or vehicle to be seen the whole day.”
      Sounds much like rural Japan, I’m sure I’d feel right at home. Many thanks for the tips and links and hope to see you in Berlin one of these days. In the meantime, enjoy the Santa Claus rally (but beware, of course, of the potential for a nasty New Year hangover!)

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