After six months of racking their brains, members of a prime ministerial advisory council have produced yet another blueprint designed to nurse the seriously ill Japanese economy back to health. The worthy work of the Economic Strategy Council should be commended. In their final report to Prime Minister Keizo Obuchi, which was delivered on Friday, the 10 eminent business leaders, economists and scholars who labored under Mr. Hirotaro Higuchi, the venerable chairman of Asahi Breweries, Ltd., have drawn up a comprehensive agenda for reviving the Japanese economy.
Fundamentally, the council believes that the nation’s economic problem is curable. Despite all the news of doom and gloom, the Japanese economy still has a solid foundation. Japan is still a major force in the fields of advanced technology. Most Japanese employers can still count on a disciplined labor force. Years of saving and investment have turned the nation’s financial assets into the envy of the world: 1,200 trillion yen in domestic savings and 100 trillion yen in net overseas assets. With such economic fundamentals, the council believes that the nation’s economy has the potential to achieve annual growth of 2 percent despite nearly zero growth in population.
The strategic agenda for attaining that goal consists of three stages: The first stage is the 1999-2000 period, during which the utmost effort should be exerted to achieve economic recovery and stabilization of the financial system by resolving the debilitating legacies of the economic bubble. This is necessary because the council’s diagnosis is that the current economic stagnation has been aggravated by the bursting of the bubble and the resulting bad-loan crisis.
In the second stage (2001-2002) the domestic economy should regain soundness and potentially attainable real growth of 2 percent by maintaining the easy-money policy and reducing the role played by fiscal spending in moderating the impact of the business cycle. This 2-percent growth is the only specific key target figure in the council’s recommendations.
What is essential for a Japanese economic revival is making the economy more competitive by forcing the nation through a series of badly needed “structural reforms.” The council envisions that full-fledged efforts to make these and other reforms in the third stage (2003-2008) will restore balance to the nation’s basic fiscal standing.
Given this strategic agenda, the specific reforms that should be implemented are predictable: Drastically reform the government’s “zaito” (fiscal investment and loan) system and increase transparency in the decision-making process. Lessen the burden of direct taxation and let the nation share the tax burden more equitably. Increase diversity in the education system. Phase out the present social security system and eventually let the private sector take over and give the public more choice. Let local governments run local affairs with independent local revenues. In short, decentralize and let market forces run their course. In other words: Build a small government.
Predictably, the bureaucracy did not like what the council was working out. Before the report was released, a pitched battle reportedly took place behind the scenes, and ideas raised by members of the council were watered down to the point where most of the recommendations became harmless platitudes that contained few numerical yardsticks.
Eventually, the council’s strategic recommendations ended up as a mere report to Mr. Obuchi and to the Cabinet. It is not a Cabinet decision binding all government ministries and agencies. To achieve the goals listed by the council will require strong political leadership on the part of Mr. Obuchi, who created the council. Without such leadership, no recommendations can be turned into actions. We have seen too many well-intentioned recommendations written by eminent advisory councils gather dust in government archives.
Far more than political leadership, the council’s report is a wakeup call for the entire nation. Since the end of World War II, Japan has never confronted a grimmer economic prospect than the one it faces today. Unemployment is at record levels. Companies that were once thought to be rocks of stability have gone bottom-up. After decades of sustained economic growth and uninterrupted prosperity, the age of uncertainty has finally caught up with us. It is, therefore, time for all of us to take another look at the reforms proposed by the Economic Strategy Council and ask: Are we happy with the state of the economy and with the way the government is handling it? Once the people’s choice has been made, politicians will listen. Otherwise, we deserve whatever our politicians give us.
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