Deregulation in Japan: Striving for Socio-Economic Transformation

Yoshihiko MIYAUCHI
(Chairman, Regulatory Reform Committee / Chairman and CEO, ORIX Corporation)

The decade of the 1990s was basically a 'lost decade' for Japan's economy. Despite the burst of the 'bubble' economy in the early 1990s and the broad realization that something was seriously wrong with the Japanese economic system, the reforms necessary to revive the economy have been put on the back burner as the Japanese government tried to prop up the economy with a succession of fiscal stimulus measures.

While the government was able to stabilize the economy to some extent with the injection of public funds, sustainable recovery was not attained due to the lack of progress in structural reforms. Instead, the continued fiscal deficits over the last few years have resulted in a crisis in the country's debt burden. The combined long-term debt of the national and local governments at the end of fiscal 2000 will be around 642 trillion yen, or close to 130 percent of GDP, and rise further to approximately 666 trillion yen by the end of fiscal 2001. Furthermore, the lack of reform has left Japan behind the wave of economic globalization and increased the gap between Japan and the leading economies of the world.

It is clearly evident, therefore, that structural reform -- a major driving force of which is deregulation -- is vital for the long-term revitalization of the Japanese economy. While some progress in regulatory reform has been made over the last decade, many further changes must be implemented before a true economic renaissance of Japan can be achieved.

Progress of Deregulation and Regulatory Reform in Japan

The push for regulatory reform in Japan was started in the early 1980s, with greater promotion of deregulation beginning from the mid-1990s. (Click here for a chronology of regulatory reform). By the time the Regulatory Reform Committee (RRC) was created in April 1999, the scope of regulatory reform had been widened to not only discuss deregulation and revision of existing regulations, but also other topics including tax and subsidy issues related to regulation. At the same time, the members of the Committee were increased and the Committee's secretariat was reinforced.

As a result, we now have an established forum for continued promotion of regulatory reform and direct access to government and politicians. The aim of the RRC is to keep important items on the agenda and continue to persuade politicians to act on the proposals of the Committee.

In addition to the establishment of a system of continued promotion and monitoring of regulatory reform, there have been some real economic benefits achieved as a result of deregulation. According a report released by the Japanese Economic Planning Agency in January 2000, for instance, deregulation in eight areas -- including telecommunications, civil aviation, vehicle inspections, electricity, gasoline and stock trading brokerage fees -- has already resulted in 8.6 trillion yen in consumer surplus. The Management and Coordination Agency also reported in November 2000 that by October of that year, 58.7% of the proposals in the Committee's revised "Three-Year Program for Promoting Deregulation" (fiscal 1998-2000) had been fully implemented and 29.2% had been partially implemented for a total of 87.9%. These figures indicate that progress in deregulation has been made in the last few years.

The Challenges Ahead

Despite the success in regulatory reform over the last few years, many very important, and much more difficult to implement, changes are required if Japan is ever to return to the ranks of the dynamic leading economies of the world. The journey to regulatory reform has really only just begun, and greater efforts are required to produce lasting and meaningful progress.

Much of the success in the first stages of regulatory reform was achieved in the areas in which a consensus was fairly easy to reach. These were primarily regulations that are considered in Japan purely "economic" or "business" activities. These include, for example, finance, telecommunications, housing, land use, transportation, energy and distribution. Even in these areas, however, there are some major hurdles that still need to be overcome. For example, the government-run postal savings system continues to distort the financial markets in Japan, and the monopoly power of the Nippon Telegraph and Telephone Corporation (NTT) will have to be reduced to allow more competition in the telecommunications market.

In addition to the unfinished business in the financial and telecommunications industries, much larger obstacles exist in fields like agriculture, education, health care, welfare and employment, which many people in Japan still believe to be primarily "social" activities that should involve a great deal of governmental involvement. The vested interests and resistance to reform in these areas are still very strong.

In December 2000, the RRC recommended that the government create a new Three-Year Program for Promoting Regulatory Reform from fiscal 2001 to continue the progress of reform. Some of the issues that still need to be addressed include:

• A broader understanding of the regulatory system and greater participation of the general populace in the regulatory reform process in order to achieve a fundamental revision of the role of government regulation in society.
• Further coordination with other areas of reform, including taxation, government administration and public corporations.
• Greater participation of consumer groups, nonprofit organizations and nongovernmental organizations in the reform process.
• Expansion of the scope of regulatory reform efforts to include regulations of local and regional governments in addition to the central government, as well as business practices and self-imposed regulations of private companies and industry associations.
• Proposals for the reform of so-called "social" areas that include health care, welfare, employment and education.
• Other issues like an appropriate regulatory environment for information technology and the environment, reform of competition policy (including strengthening of the Fair Trade Commission), and revision of the corporate and civil legal systems.

This list of far-reaching topics is evidence of the enormous amount of work that still must be done to achieve a fundamental revision of the regulatory system governing Japan. A great deal of political will and public understanding will be necessary to attain such a transformation of the Japanese socio-economic structure. If the necessary changes are implemented, Japan should be able to look forward to a prosperous and dynamic future. Without such reform, Japan is destined to continue its decade-long progression down the road to economic mediocrity.

The views and comments expressed in this article are the individual opinions of Mr. Miyauchi himself. For previous comments on deregulation by Mr. Miyauchi, please see his May 26, 2000 speech delivered to the Foreign Correspondents' Club of Japan. More information on the activities of the Regulatory Reform Committee can be found in the Committee's home page.