Staff writer

As part of ongoing efforts to revive Japan’s industrial competitiveness, the government is set to drastically revise legislation covering small and medium-size companies and venture businesses during the extraordinary Diet session that opens today.

For starters, the Cabinet will endorse bills today to revise the 1963 Small and Medium Enterprise Basic Law changing the government’s policy of providing assistance to small and medium-size firms, which are presently viewed as underdogs vis-a-vis bigger enterprises, according to government officials.

The legislation, which will be submitted to the Diet later in the day, stresses the need for the government to enhance the self-help efforts of diverse and dynamic smaller companies so they can help the economy by creating new businesses and job opportunities.

Several other bills concerning startup, venture and small-scale businesses will be introduced to the Diet for deliberations next month.

The government will also work to abolish taxation on corporate reserve funds and revise inheritance and real estate taxes during the extraordinary Diet session.

“We must deal with small and medium-size firms right now so as not to let the economic recovery buckle toward next year,” said an official at the Ministry of International Trade and Industry.

The government has pledged to have the role of propelling economic growth — which the public sector has so far had to shoulder — passed on to the private sector during the next fiscal year.

By promoting small and medium-size firms and venture businesses to the status of growth-engines for the economy, the government hopes to increase the annual number of business startups from the current 140,000 to 240,000 within five years, and also generate 1 million new jobs.

Ultimately, the government is aiming to more than quadruple the number of firms introducing their shares on the over-the-counter market in Japan, which as of 1998 stood at 62, to match the competitiveness of the U.S. Nasdaq market, the backbone of flourishing American venture businesses.

Admittedly, this focus on smaller businesses has been late in coming.

So far, the government has concentrated its efforts on devising means to stimulate demand and help larger firms restructure, by the introduction of tax and other incentives, through measures such as a special law on industrial revitalization that was approved by the Diet in August.

The legislation concerning revision of the small business law consists of four policy pillars:

1) encouraging small and medium-size firms to revamp their operations and undertake venture businesses through measures that will enable them to develop their bases in capital, equipment, technology, information networks and human resources;

2) strengthening the base of business operations via measures such as small business innovation research and cooperation among industry, academia and the government to boost research and development;

3) preparing a safety net in case of financial crises or bankruptcy;

4) and implementing financial and taxation reforms to enrich owners’ equity and diversify fundraising channels, including access to direct financing.

To enable more firms to benefit from these measures, the revised small business basic law would broaden the definition of small and medium-size companies. For example, manufacturers capitalized at up to 300 million yen would now be included in the category; presently, only those capitalized at up to 100 million yen are defined as small companies.

In addition, the government will offer reassurances in the revised legislation that it will continue to consider the plight of small companies that cannot increase their competitiveness.

However, it is feared that such protection for small and medium-size firms may prove to be a double-edged sword, as excessive promotion of steps to bolster the footing of such firms, such as a recent decision to extend the availability of 20 trillion yen worth of special credit guarantees to small businesses, may invite further public criticism that the measures are simply political grandstanding or over-protectionism of lagging industries.

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