The government’s latest economic white paper has a strong message to the nation: Let us put the slump behind us as quickly as possible and get the economy back on a firm footing. The annual report, released last Friday by the Economic Planning Agency and subtitled “Challenge for economic revival,” represents a step forward from last year’s, which described 1998 as a period of laying the “groundwork for creative development.”
This year’s report consists of three sections. The first, under the heading “Japan’s economy supported by policy effects,” analyzes past economic trends and policy responses. Significantly, it reflects humbly on the way the government dealt with the protracted recession. “With hindsight,” it admits that the government underestimated the gravity of the situation.
The second section, “Backgrounds and realities of restructuring,” points out that corporate Japan is burdened with three “negative legacies” from the “bubble” period: overcapacity, high unemployment and heavy debt. It stresses that restructuring is an urgent priority if these excesses are to be cleaned up.
The report lays down three “principles” for restructuring. First, business and industry should get their act together and give workers hope and a sense of security. Second, every effort should be made to minimize the impact on middle-age and older white-collar workers. And third, the government should take steps to encourage corporate efforts to reorganize.
The third section, headed “Toward a new risk regime,” points up the need to create conditions that help to develop high-tech startups. It emphasizes that support for such venture firms is essential to the sustained revival of the Japanese economy.
There is no denying that restructuring is the key to an early liquidation of the “negative legacies” and that development of startup companies is an essential condition of a competitive economy. The question is, what exactly will the government do to facilitate these efforts? For example, what steps is it prepared to take to promote deregulation and tax reform? Regrettably, the report stops short of giving specific answers. The impression is that its writers did not even discuss these questions in detail.
On the other hand, they exhibited uncharacteristic daring by posing a “provocative question:” What if Japan did not take risks and took zero growth for granted, content with the present levels of production and consumption? If Japan follows this “negative scenario,” they warn, it will lose international competitiveness, with production declining and with many of our best brains leaving the country in search of better opportunities abroad.
In the words of EPA chief Taichi Sakaiya, Japan would be reduced to an “aged developing country.” The remark sounds like a bit of hyperbole from a writer-turned minister. True, the economy has shrunk in the past couple of years, but that has hardly eroded its competitiveness. Industrial products, in particular, continue to enjoy brisk demand on world markets. It is also true that the population is aging at an accelerated pace, but this does not mean Japan is on its way to becoming an “aged developing country.”
The authors of the report seem to be still obsessed with the “growth myth” of the past — the notion that equates prosperity with constant high growth. Of course, Japan’s economy needs to grow, but “growth obsession,” with its attendant pressure for export expansion, tends to create trade tensions and distorts the export economy.
The statement that households should supply risk capital also needs to be taken with a pinch of salt. The white paper, noting that portfolio investment carries far larger weight in family assets in the United States than in Japan, urges Japanese families to invest more in stocks, bonds and mutual funds. The report says, correctly, that such investment is not gambling but sensible financial planning and that it is needed to help finance the productive activities of startup enterprises. But the government has no right to dictate to households about how to use their nest eggs.
What the government should do is create conditions that help investors participate more easily in the financial markets, including better disclosure on the part of business corporations and financial institutions. Asking households to supply risk money because it is badly needed is putting the cart before the horse. Mr. Sakaiya says, quite rightly, that the government should get rid of its “pace-setter” mentality and rely more on private-sector initiative. However, his words have yet to be matched by actions.
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