The biggest challenge for Japan as it greets the new millennium is implementing drastic political, economic and educational reforms, comparable to those carried out in the Meiji Restoration and after the end of World War II. Plans must include major fiscal reform, restructuring of the banking system, overhaul of the education system and the establishment of social morals.
The government faces de facto bankruptcy after issuing a series of deficit-covering bonds as part of economic stimulus packages. Without establishing realistic budget-balancing policies early, the government will have a hard time restoring fiscal health in the 21st century.
A banking crisis has been averted, and the reorganization of the banking industry is making progress. However, there are moves in the political world to delay banking reform. Some lawmakers have suggested, for example, that the implementation of a plan to limit bank-deposit protection to 10 million yen per depositor, beginning in 2001, be delayed.
Meanwhile, various problems in elementary-school education are associated with the low scholastic abilities of university students. And the erosion of social morals reflects problems in education.
Niwa Takahiro, an Edo period feudal lord in Nihonmatsu, now Fukushima Prefecture, established a code of conduct for his men that is still engraved on a monument at the ruins of Nihonmatsu Castle. In essence, the epitaph urges moral conduct and emphasizes that the samurai class depends on the lower non-samurai classes for their livelihood. A basic manual in public administration, it urges his men to remember that they cannot deceive God. I believe it should be read by present-day politicians and bureaucrats.
The Nihonmatsu clan joined the pro-Tokugawa Aizuwakamatsu clan, also part of the present Fukushima Prefecture, to fight the forces of the Imperial Restoration in the Boshin civil war. Most of the Nihonmatsu warriors committed suicide at the castle after losing the battle. A corps of Nihonmatsu youths was decimated as well by an Imperial army, along with the famed Byakkotai (White Tiger Brigade) of the Aizu domain.
I am not trying to revive old-fashioned samurai morals. I only hope that Japanese leaders today will remember the samurai leaders’ severe self-restraint, their sense of mission and sense of responsibility. Lower-class samurai warriors, who had nothing to lose except their lives, took the initiative in implementing major reforms in the Meiji Restoration. Japan’s postwar reconstruction was supported by the descendants of the samurai class.
Japan’s budget problems are critical. Before compiling a fiscal 2000 budget, the government announced an economic revival plan that totaled 18 trillion yen. A second fiscal 1999 budget, increased bond issues in the year to 38.6 trillion yen, up more than 4 trillion yen from the previous year. The government depended on bond issues for 43.4 percent of its fiscal 1999 expenditures.
In the proposed fiscal 2000 general-account budget, government bond issues totaled a postwar record of 32.6 trillion yen. The bond dependency ratio is 38.4 percent, but the government will be saddled with outstanding bond issues totaling 364 trillion yen at the end of the year. Long-term debts owed by the central government and local governments will come to 647 trillion yen, 129.6 percent of Japan’s gross domestic product. The ratio will be the highest among industrial nations, exceeding even that of Italy.
Finance Minister Kiichi Miyazawa said recently that the Japanese economy will start recovering in fiscal 2000, adding that the government should compile no more expansionary budgets. However, even if the economy starts recovering, it will take more than 10 years for the government to balance the budget, barring Draconian measures. The Bank of Japan’s policy of keeping interest rates at almost zero, combined with slumping private-sector capital spending, have prevented a steep rise in long-term interest rates. But overseas premium interest rates on Japanese government bonds are gradually rising.
If private-sector capital spending recovers, long-term interest rates are bound to rise and this will lead to an increase in interest payments on government bonds, worsening the budget problem. Fiscal authorities have had only limited success in cutting expenditures — even though they would have little economic stimulus effect — in the face of resistance from the ruling coalition. The alliance has called for generous spending to curry favor with voters.
To implement drastic reforms, it is essential for the government to prepare safety nets for potential victims of the measures. Japan needs economic deregulation and generous spending that would produce new businesses to spur labor mobility; improved job-placement and worker retraining activities; tighter controls on information-related crimes; and legal measures covering all such activities. However, coordination among interested parties on the safety nets is lagging, and business leaders are dragging their feet in pushing reforms.
A detailed schedule and a bold plan for fiscal reform should be established as soon as possible. Neither is necessarily inconsistent with strong economic stimulus measures. Unless such measures and a schedule for fiscal reform are announced, consumers and companies will be plagued by worries about the nation’s future and there will be no recovery in consumer and business spending. People will not be deceived by the cheap tricks of politicians.
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