It’s all about the vision thing, or the lack of it, thinks Keio University economics professor Heizo Takenaka about the campaign for the Lower House election.
“It is obvious that simply continuing (expansionary) fiscal policy for another year could never do the economy any good,” Takenaka said in an interview. “Political parties need vision. They have to present scenarios of how they will revitalize the economy.
“Some say economic recovery should come first at any cost and reconstruction of government finances later. But it is clear that both are important. The parties need to explain how both can be achieved,” he said.
Takenaka was a leading member of the Economic Strategy Council, an advisory panel to the late Prime Minister Keizo Obuchi.
The Obuchi Cabinet carried out the proper policies to pull the nation out of the 1998-99 economic crisis, setting aside 60 trillion yen to fix the banking-sector mess and 24 trillion yen for an economic stimulus package, among other actions, the scholar said.
But the government took a wrong turn when it decided in December to push back the 2001 termination date for full guarantees of bank deposits, Takenaka said.
His logic: Ending the guarantee as initially planned would have forced banks into increased competition, forcing them to expedite the disposal of their bad loans and increase pressure on corporate borrowers to trim their excess staff and equipment, remnants of the burst of the bubble economy.
Without such an “adjustment,” debt-ridden companies will not be able to borrow enough funds for new projects and therefore capital investment cannot return to the levels it should, he said.
Government spending is necessary only to mitigate the “pain” caused by the adjustment, he said, warning that more spending without such adjustment will only serve to expand the already-huge government debt.
Outstanding public debt will reach an estimated 645 trillion yen — 130 percent of Japan’s gross domestic product — at the end of next March.
To achieve fiscal reconsolidation, the yearly budget deficit, excluding debt servicing, should be eliminated by fiscal 2007, he said, because the nation’s potential growth rate will fall after the population’s expected peak in 2007.
The next government will thus have to turn sharply toward reconsolidation at some point to begin reconstruction by fiscal 2003, he said.
Political parties also need some form of vision for the information-technology revolution, the economist said.
“The most important IT policy is to create a national movement” so all people can share the concept of the revolution, which is radically changing human values and lifestyles, he said.
The government should, for example, provide tax incentives for computer lessons and connect all school classrooms to the Internet, Takenaka said, adding that the prime minister should visit remote areas to demonstrate and discuss the benefits of IT, similar to what U.S. President Bill Clinton has been doing.
Public investment should be limited to IT-related projects when the government compiles its next supplementary budget for the current fiscal year, which Takenaka said will “surely” be prepared this fall.
Takenaka made these IT proposals when he dined with Prime Minister Yoshiro Mori on June 1, the day before the Lower House was dissolved. There was not much reaction from Mori, he recalled.
Apart from economic policies, political parties should also try to distinguish themselves from each other by making pledges such as creating a swift intraparty decision-making system, placing emphasis on female candidates or setting an age limit for lawmakers, he suggested.
Clarifying such political styles is particularly important for this election campaign, because the prime minister’s authority will be reinforced with the realignment of government ministries and agencies, set to take effect in January, he said.
“What kind of people will be politically appointed to the new Cabinet Secretariat and what will they do? That should be an election issue.”