Following U.S. Federal Reserve Chairman Alan Greenspan’s comments suggesting a change in U.S. monetary policy, the surging U.S. stock market has apparently entered an adjustment phase. To prevent the booming U.S. economy from overheating, it is necessary to fine-tune monetary policy.
Aside from that, we need to learn from U.S. economic prosperity. The question is: How have the U.S. government and corporations succeeded in reforming themselves after the criticism of their dismal performance in the 1980s? There are many answers. Some cynical observers may argue that Japan’s government policy failures and bank mismanagement have caused a serious domestic supply-demand imbalance, resulting in a massive outflow of funds to the United States. The funds apparently have contributed to the revival of the U.S. economy, driven by financial markets and information technologies.
It behooves us to learn from the successes of U.S. banking and manufacturing industry executives. Ambitious and willing to take risks, they have developed superb corporate strategies and have implemented reforms quickly.
In the Japanese corporate culture, no major projects are started without agreement between the public and private sectors. In the U.S., however, individual executives and companies tend to come up with various ideas and implement reforms swiftly through the trial-and-error process. Of course, many failures have resulted from bad planning.
Japanese take a long time before starting to move. But once they get going, they are more likely to persist in pursuing their goals than are Americans. At the same time, they tend to have more difficulty adapting to changes than do Americans.
I am not saying the American system is good in all respects. But we need to act quickly in the face of what is widely regarded as a once-in-a-century transition period. We should build consensus on policies without delay, disregarding minor differences between political parties, between the public and private sectors and between industries. Otherwise we could lose our long-term perspective and experience a vicious cycle of accumulated problems from delayed reforms that will make reform even more difficult.
The Japanese industrial world suffers from three forms of excess — excess equipment, excess labor and excess debts. The value of excess equipment, stemming from slack demand and excess business investment, is estimated at 85 trillion yen by the Economic Planning Agency and at more than 100 trillion yen by private think tanks.
Masaru Yoshitomi, chief of the Asian Development Bank’s research institute, said in a recent newspaper interview with Keio University Professor Heizo Takenaka that Japan’s excess equipment stems mainly from slack demand. He said that Japan should shift its attention from scrapping obsolete equipment to achieving additional 2 percent economic growth by easing credit. On the other hand, Takenaka said that the economy is burdened with a large amount of bad assets — unusable equipment and land — and that tax reforms should be implemented to promote the writeoffs of such assets.
Despite their differences, the experts agreed that it is up to individual companies to decide which assets should be written off and that the responsibilities of shareholders and executives should be clearly established.
Needless to say, the public and private sectors should fully cooperate with each other to revive the moribund Japanese industries. Excess business resources, including labor, should be transferred as smoothly as possible from the old-style heavy industries to high-tech industries such as telecommunications. The public and private sectors need to cooperate to establish a framework for moving industrious, skilled workers to newly growing industries. Corporations should help each other in reducing excess equipment. The government should reform legal and tax systems to assist in companies’ self-help efforts. Measures to help companies sell abandoned plant sites are also important.
The Ministry of International Trade and Industry has designated 15 industries — such as telecommunications, environment-related and biotechnology industries — as new growth sectors in which millions of jobs are likely to be created. There is nagging concern, however, about the future of old-style heavy industry companies, many of which depend on government help and fail to push drastic restructuring plans. The government has established the Industrial Competitiveness Council with the private sector to promote the reduction of excess facilities, but some manufacturing company executives are clamoring for aid similar to public funds provided to banks to help them write off bad debts. Others are unwilling to promote the reduction of excess facilities unless the government allows them to introduce an antidepression cartel as an exception under the antimonopoly law. Dishonesty and imprudence, which were common among banks looking to receive government aid, are now spreading among manufacturing companies.
Many manufacturing companies have fallen behind in renewing their equipment, while banks have curbed their credit. They have become much less competitive and will be unable to survive without scrapping obsolete equipment. Companies that remain competitive have drastically reduced excess equipment and personnel.
The government should give only limited aid to companies, encouraging them to promote reform on their own. The government should implement tax reforms and economic deregulation to help companies promote restructuring programs and diversify into new markets. It should also introduce programs to facilitate the re-employment of discharged workers and to promote the capitalization of venture businesses.
A shortsighted infusion of public funds and approval of cartels would damage companies’ self-help efforts. Japan’s overall unemployment rate is likely to hit 5 percent soon. Companies need to develop new products and services and employ new workers, especially retrained personnel, through private recruiting agencies.
Now is the time for the government and companies to develop workable, comprehensive strategies with U.S.-style speed.
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