Economists doubt structural reforms will succeed

With the Cabinet’s approval May 16 of an action plan for economic structural reform, the government tried to demonstrate its indomitable resolution to reconstruct the nation’s economic system and ensure sustainable growth well into the next century.

Many economists, however, remain skeptical whether all of the measures, some 1,000 in all, will usher in the desired results — reductions in the costs of doing business and a more favorable environment for starting them. They say that the package — despite being a detailed version of the program adopted in December — still lacks many important details.

Government officials emphasized when the package was announced that the proposed plan is subject to Cabinet approval, which is the weightiest stamp that can be given to administrative policies.

In other words, the government will be obliged to take every action stated, and the action plan will serve as a virtual bible in implementing related policies in the future.

During a news conference following the Cabinet’s approval, Shinji Sato, minister for international trade and industry, pledged continued efforts to ensure full implementation of the package in the next four years.

“It has been too often the case that we feel our jobs are done with compiling a certain package of plans and policies,” he said. “But what’s important is to follow up and realize our intended results stipulated in the package. To that end, we will continue to study and incorporate new and additional measures where necessary.”

Indeed, many economists acknowledge the government’s determination to take every necessary measure now that it has stepped into areas that were long held sacred from radical reforms.

For example, the government proposed measures intended to expose the nation’s heavily protected power industry to competition as a way to bring electricity costs down to an internationally competitive level.

It is now poised to promote joint research activities between national universities and private businesses, which have effectively remained taboo in Japan.

However, economists say that the package, as it stands today, is not yet sufficient and that the success of economic structural reforms depends on how far the government can push from where it stands today.

“Things seem to be moving quite fast but it is hard to tell what we can expect out of this package,” said Hisao Kifune, associate professor of economics at Nagoya Gakuin University. “Apparently, the government is trying to introduce competition in the power generation businesses, and that is a positive step. And in this regard, I would give it 70 points out of a possible 100.”

However, Kifune pointed out, the package has failed to specify whether and to what extent distribution networks for power utilities should be opened up to new entrants who are generally referred to as independent power producers.

He also calls for introducing a new pricing system to increase rates for daytime use as a demand-side disincentive in curbing peak demand loads.

Nobuyuki Saji, chief economist at Nikko Research Center, says that the package has failed to explicitly call for alleviating corporate tax burdens, an indispensable factor for the revitalization of business in Japan.

“In a sense,” he said, “it is understandable that the government couldn’t go any further than simply stating that the corporate tax system will be reformed by the end of December, because the issue is primarily subject to fiscal and tax reforms, which have their own timetables.

“But then, I don’t see any point in announcing this package of structural reform at this point.”

Saji said that the excessive tax burden on companies, with effective tax rates as high as 50 percent, is one big reason driving manufacturers out of Japan. “You’ve got some tools to start up new businesses and you venture out,” he said. “But you would not make much profit if the corporate tax system remains unchanged.”