Deputy Prime Minister Naoto Kan faced off Wednesday with Heizo Takenaka, who was a key economic adviser to former Prime Minister Junichiro Koizumi, and differed sharply with him over whether the government should put priority on supporting corporations or households to spark economic growth.
Takenaka, now a Keio University professor, was invited to a meeting of a government panel on economic growth strategy. He argued that the supply side should be given priority and called for empowerment of corporations through tax cuts, deregulation and privatization of the postal services.
“The basis of economic growth should always be on the supply side,” Takenaka, who was internal affairs minister and minister in charge of postal privatization and fiscal policy, told the panel.
“It is very unfortunate that Japan Post has been nationalized again,” said Takenaka, who was a key architect of Koizumi’s push for postal privatization.
Kan argued that the demand side should be given priority, stressing the importance of job creation in such areas as nursing care for the elderly.
Kan was a key critic of Takenaka’s economic policies before Kan’s Democratic Party of Japan took power.
Takenaka is a well-known advocate of Western-style free competition and deregulation, rather than the traditional Japanese policy of emphasizing job protection.
“I think the theory that strengthening the supply side improves the macro economy has failed,” said Kan, adding Japan faced recession several times due to the excessive supply capacity in the 1990s.
Kan argued that under the Koizumi government, the gap between the rich and poor widened, sparking Takenaka to disagree.
Takenaka also pointed out that Japan achieved economic growth under the Koizumi Cabinet and created 1 million new jobs.
Kan and Takenaka, however, agreed that lavishing huge funds on public works in the 1990s did little to stimulate the economy.
Takenaka pointed out that historically the effects of public works spending last only a short time. Kan said the government should carefully select projects for stimulus packages that will help generate long-term growth.
Kan, who heads the national strategy office of Prime Minister Yukio Hatoyama’s Cabinet, is tasked with drawing up long-term economic growth strategies.