Staff writer

With Diet approval Friday of special legislation to beef up Japan's industrial competitiveness, the government has taken only the first step toward restructuring the nation's supply-side economy.

Because supply-side reform is expected to unsettle the workforce as industries, with the help of preferential government programs, shift resources toward growth sectors, the government is faced with a heap of followup tasks, including creation of new industries to absorb workers squeezed out of unprofitable sectors.

"We believe that the legislation is only one step to help Japan regain economic vitality," said Kaoru Yosano, minister of international trade and industry. His ministry serves as the secretariat for the government's Competitive Commission.

While recognizing the need for more substantial programs, as well as tax and financial measures to complement the temporary legislation, which is expected to take effect Oct. 1, Yosano pledged that the government will step up efforts to promote industrial technological development, especially by small and midsize enterprises.

To create new growth sectors, Yosano said the administration of Prime Minister Keizo Obuchi will also flesh out "millennium" projects dealing with biotechnology, information technology, social welfare and the environment toward the coming century.

Some economists welcome the industrial resuscitation measures, on condition that the government address head-on the tasks of deregulation and structural reforms to pave the way for creation of new businesses and job opportunities.

Kazuo Mizuno, chief director for financial market research at Kokusai Securities Co., said the legislation should encourage mainly manufacturing industries to streamline their assets by allowing companies to deduct losses incurred in scrapping unprofitable plants and equipment from their taxable income for an extended period of seven years.

Kokusai estimated excess capacity in all industrial sectors at 140 trillion yen and excess debts in those sectors at 150 trillion yen, with a redundant workforce of 5 million.

"We must be prepared to undergo a period of dynamic industrial transition, which involves much pain in weeding out the waste," Mizuno said, noting the government must simultaneously sort out the direct finance market, taxes and other incentives to help nurture new and alternative startup businesses.

Having maximized financial and monetary tools to cope with the nation's economic slump, the government has made the right policy shift toward industrial metabolic change, said Tetsuro Sugiura, chief director of economic research at Fuji Research Institute Corp.

"We should acknowledge the government's intentions to facilitate restructuring through such tax and legislative measures concerning corporate split-ups," Sugiura said. "Now the problem is exactly how soon the government will be able to help create new growth industries (to expedite labor turnover) while boosting a social safety net as prepared by the recent emergency employment measures."

Sugiura called on the government to ensure that measures such as debt-equity swaps and tax incentives on deficits concerning disposal of excess capacity not lead to corporate moral decay and prolong the life of impotent businesses.

Meanwhile, other experts urged the government to encourage the private sector to resort more to self-help, while demanding that executives take management responsibility themselves before laying off workers amid restructuring.