Last of three parts Staff writer 1999 may prove to have been a pivotal year for small businesses. Scores of small and medium-size enterprises collapsed amid the prolonged recession, but the severity of the situation attracted public attention to their plight, leading the government to map out a legal framework to help revitalize such firms. Now smaller companies must seize this opportunity to regain their health and transform themselves into the powerhouse of the economy, Kosaku Inaba, chairman of the Japan Chamber of Commerce and Industry, said in a recent interview. "In terms of securing an appropriate environment (to assist small businesses), 1999 saw a certain degree of improvement. 2000 is (the year in which) the stage must be set to breathe life into the (new legal) framework," said Inaba, who is also chairman of Ishikawajima-Harima Heavy Industries Co. Among the country's four major business organizations, JCCI is known for reflecting the voice of small business and representing regional chambers of commerce and industry nationwide. The 75-year-old Inaba also serves as chairman of the Tokyo Chamber of Commerce and Industry. Compared with large-scale companies in Japan, those who manage smaller businesses traditionally must work under stricter conditions, such as having fewer options when trying to raise funds and a difficulty in hiring qualified staffers. The situation stems from the country's pyramid-like structure, which places large companies at the top with small and medium-size enterprises forming the lower layer. Small businesses were particularly hard hit by the recession, because large companies often whittle transactions with smaller firms and demand cost reductions as a way to cut their own costs and adjust their business operations to the shrinking economy. The woes of small companies were further exacerbated with the tightening of credit offered by the nation's banks -- their main source of funding -- as financial institutions reviewed their lending and management practices in view of ongoing financial deregulation and the intensifying competition that ensued. Against such a backdrop, the number of bankruptcies of small enterprises grew sharply, leading to demands from their owners for countermeasures to be taken. Inaba backs measures The government launched an array of measures to assist such businesses, including expanding the existing credit guarantee framework by 20 trillion yen to help money flow to small firms. Inaba lauded these measures, saying they helped ease the difficult conditions surrounding smaller businesses and noted that the number of bankruptcies has decreased substantially. In number, small enterprises "account for the greatest part of the Japanese economy. When that part (of the economy) is stagnant, it is equivalent to having the whole economy in stagnancy," Inaba said. "By all means, (smaller businesses) must regain their health." However, some critics point out that small companies should put corporate information up to public scrutiny if they are to continue to receive government assistance. The firms should also be monitored to see whether their owners properly use the assistance, they add. Inaba admitted that smaller enterprises need to disclose information to investors if they are to lessen their dependence on receiving loans and need to broaden ways in which they raise funds, such as stock issues and bonds offered through private placement. "In Japan, it is said that there is less transparency (regarding company conditions) than in the United States. And small and medium-size companies tend to be a little secretive in that sense. Promoting disclosure is one of the conditions to modernize and rationalize (smaller enterprises)," he acknowledged. Inaba defended JCCI's request to expand the credit guarantee framework by another 10 trillion yen, which was adopted by the government, saying the applicants for the guarantee would be checked more severely on such matters as future profitability and attitude toward maintaining jobs. As his resolution for 2000, Inaba vowed to continue speaking up for smaller firms, which he believes need more steps to stimulate their activities, and to advocate further deregulation. Among possible measures to revitalize small businesses, Inaba cited the necessity to revise the tax system in such areas as the inheritance tax and fixed-assets tax. The ruling coalition has already endorsed such reforms and Diet debate on the issue will begin in the ordinary Diet session to begin later this month. JCCI is urging the government to re-examine the existing tax system based on criticism that the current high inheritance tax is keeping the younger generation from taking over their parents' small businesses. Inaba also stressed that deregulation should be carried further in 2000 since, even though the government has tackled deregulation for over a decade, existing restrictions still impede the development of industry. The ongoing deregulation "is not enough for those who look at (the issue) from outside (Japan). And even from within (Japan), there is a recognition that the speed (of deregulation) is insufficient," Inaba said. Doubts about recovery Meanwhile, Inaba is cautious over prospects for the economy, which finally began showing a glimmer of recovery in 1999, saying it is yet to show solid improvement. "During the latter half of 1999, we felt the economy turning slightly upward due to government measures. But the improvement doesn't seem to be steady. In my mind, the current situation is not one in which the sun has started shining." Among the reasons for the staggering economy are slack private investment, low levels of private consumption due to uncertainty about the future and the steep appreciation of the yen against the dollar, he added. He pointed to the government's 1 percent growth projection for fiscal 2000, which begins April 1, and said the figure indicates the economic upturn will be felt differently among various sectors and that not all industries will have a rosy year. Inaba also expressed his concern over the country's fiscal health after the series of pump-priming measures implemented through expansionary budgets. Last month, the government compiled a roughly 85 trillion yen budget for fiscal 2000 in which 38.4 percent of the general account revenue relies on bond issues. As a result, the accumulated amount of issued bonds is estimated to reach 364 trillion yen at the end of fiscal 2000. "The only thing growing is fiscal spending," Inaba said. "The fiscal 2000 budget is of an unprecedented scale. And much of it is financed by issuing bonds, which is not healthy spending. In other words, we're passing the tab on to future generations." As Japanese companies continue restructuring in an effort to compete in the global market, employment has emerged as an urgent issue to the country and corporate leaders. Although the government estimates that the unemployment rate will drop to 4.5 percent in fiscal 2000 from the 4.7 percent estimated for fiscal 1999, the figure is still high. While Inaba acknowledged that firms must restructure to become leaner, he pointed to the contradiction stemming from the government's requests for the private sector to keep jobs. As a result of restructuring, those who lose jobs need to find work in another industry or company, making labor market fluidity inevitable. However, there are still social and structural impediments for those who change jobs in a country where lifetime employment has been the accepted norm for so long. For example, those who switch jobs generally get less retirement pay than those who work for one company through retirement, Inaba pointed out. In the process of realizing the movement of employment, he said smaller enterprises have a significant role to play. "When it comes to the question of who will absorb the labor, small businesses, once they become healthy and independent (from government assistance), will be able to play a role (in the movement of workers)."
